Roaring Pending Home Sales Index Puts 2013 Home Buyers On The Clock
The housing recovery is underway. From San Jose, California; to Detroit, Michigan; to Dade County, Florida, the lowest mortgage rates in a lifetime have offset rising U.S. home prices, giving renters reason to buy, and investors hope for the future.
Nationwide, homes are headed under contract at the quickest pace since the tax-credit-stimulated periods of 2009 and 2010.
Pending Home Sales Index : A Different Indicator Type
The Pending Home Sales Inde (PHSI) is a monthly report, published by the National Association of REALTORS®. It measures homes under contract, and not yet closed. In this way, the Pending Home Sales Index serves as a forward-looking housing market indicator.
Fundamentally, the Pending Home Sales Index is different from commonly-cited housing market metrics which report on how the housing market performed through some period in the past. By contrast, the Pending Home Sales Index relies on current purchase-contract data to predict how housing may perform in the future.
According to the real estate agent trade group, the Pending Home Sales Index rose close 2 percent in March as compared to the month prior, registering a reading if 105.7.
The March data also marks the 23rd month in a row for which the PHSI improved on a year-over-year basis, a streak that's helped to push the PHSI to its highest point since April 2010 -- the last month of that year's federal home buyer tax credit.
As compared to last year, the Pending Home Sales Index is higher by 7 percent.
Expect More Rising Home Prices This Summer
According to the National Association of REALTORS®, 80% of U.S. homes under contract close within 60 days; with the majority of the remaining homes closing within months 3 and 4.
For this reason, the Pending Home Sales Index correlates highly with the Existing Home Sales, which reports on actual home closings.
To show the correlation using real-time data :
- January 2013 : Pending Home Sales Index showed a 9.5% gain from January 2012
- March 2013 : Existing Home Sales showed 10.3% gain from March 2012
Therefore, with the Pending Home Sales Index up seven percent from one year ago, we can reasonably expect home resales to rise by a similar amount this summer. This would put the 2013 annual home sale tally near 5 million.
As home sales rise amid a constricted national supply, U.S. home prices are expected to rise.
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The March 2013 Pending Home Sales Index tells us that the 2013 spring market was strong, and that the summer months are likely to remain hot. Home resales will be high through May and June, and momentum should carry into Fall 2013, at least.
Among the market wildcards, though, are mortgage rates. Should mortgage rates rise, it's reasonable to expect that additional renters will join the 2013 home buying market. Rising mortgage rates can create urgency for renters and, plus, renters tend to have obstacles to homeownership because there's never a "trailing home" to sell, for example.
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