NAR’s Pending Home Sales Index Projects A Strong Winter Housing Market, Rising Prices For Buyers
The U.S. housing market recovery continues. From San Jose, California; to Detroit, Michigan; to Dade County, Florida, homes are going into contract at a furious unequaled since the early-part of last decade.
Furthermore, home buyers appear to be looking past recently-rising U.S. mortgage rates. Despite a full percentage point increase in mortgage rates between May and June 2013, the number of home sale agreements eased only slightly.
Buyers should expect a strong finish to 2013, with momentum carrying into 2014.
Pending Home Sales Index : A Different Indicator Type
The Pending Home Sales Index (PHSI) is a monthly report, published by the National Association of REALTORS® (NAR). It measures homes under contract, and not yet closed.
The Pending Home Sales Index is a forward-looking housing market indicator and, in this way, it is different from the major housing market metrics.
Most housing market metrics reveal how the housing market performed during some historical period -- whether one month or one year ago, as two examples. What makes the Pending Home Sales Index unique is that, in measuring the past, it attempts to predict how housing will perform in the future.
Because 80% of homes under contract close within 60 days, and many of the rest close within 120 days, there is a high correlation between the monthly Pending Home Sales Index and the Existing Home Sales report released two months later.
The Existing Home Sales report measures closed home sales. It's widely-used housing market metric. Based on recent Pending Home Sales Index data, then, we can expect Existing Home Sales to retreat into 2014.
According to the National Association of REALTORS®, the October Pending Home Sales Index rose slipped 0.6 percent from September to fall to 102.1, marking the fifth straight month of decline for the index.
Despite the decline, the numbers aren't cause for alarm.
The Pending Home Sales Index is at its lowest point since December 2012, but it remains firmly above the benchmark "100" value which represents the housing market of 2001, the year in which the Pending Home Sales Index was first launched.
2001 was considered a good year for the U.S. housing market. By comparison, then, 2013 can be considered a great year.
The Pending Home Sales Index has averaged 106 since January.
Expect Fewer Home Sales, Higher Home Prices
The Pending Home Sales Index is down for the fifth straight month. It's no surprise, then, that the highly-correlated Existing Home Sales report has shown fewer home resales in every month since August.
We should expect Existing Home Sales to drop through November and December, too; and to fall beneath 5 million units on a seasonally-adjusted, annualized basis for the first time in six months.
Home resales projections for 2013, based on the Pending Home Sales Index :
- November 2013 : 4.89 million homes sold on seasonally-adjusted, annualized basis
- December 2013 : 4.86 million homes sold on seasonally-adjusted, annualized basis
Falling home sales don't necessarily correlate with lower home prices, however. Home supply remains scarce nationwide, with the complete U.S. inventory expected to sell-out in just 5.0 months at the current pace of sales.
Supply of less than 6.0 months is believed to connote a "Seller's Market".
Scarcity may be among the reasons why home values are rising, in general. As compared to last year, home values are up more than eight percent. The median home sale price has climbed 13 percent.
The good news for today's home buyers is that there are a bevy of low- and no-downpayment mortgage programs to complement the existing 20% down programs via Fannie Mae and Freddie Mac.
The FHA offers a 3.5% downpayment program, and the VA and the USDA both offer 100 percent, no-money-down programs for eligible U.S. home buyers. Get pre-approved today to see how much home you can afford.
Mortgage Pre-Approvals And Today's Rates
The October 2013 Pending Home Sales Index is a reminder of the U.S. housing market's strength. Home sales, though falling, are expected to remain strong through the remainder of 2013, and momentum may likely carry into 2014.
Among the wildcards for housing, though, is the future of mortgage rates. Higher rates may not slow the pace of purchases, but it will make homes more expensive to purchase and to own.
It helps to be aware of the changing mortgage market and how it affects your budget. See today's rates and get yourself pre-approved for a loan. Rates are available online at no cost and with no obligation whatsoever.