Posted April 29, 2014

The Housing Market Is Picking Up Already; Pending Home Sales Index Points To Strong Spring Season

Pending Home Sales rise for the first time in 10 months; Existing Home Sales expected to rise in spring

Pending Home Sales rise for the first time in 10 months; Existing Home Sales expected to rise in spring

The U.S. housing market recovery continues. After a winter-long slowdown, from San Jose, California; to Detroit, Michigan; to Dade County, Florida, homes are going into contract at a quickening pace.

With mortgage rates remaining low, today's home buyers should expect a strong start to the spring housing season, and rising home prices through the summer, at least.

It's a good time to consider buying a home.

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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 pick up into the spring housing market.

According to the National Association of REALTORS®, the March Pending Home Sales Index rose 3.4 percent from the month prior to reach 97.4. The jump marks the first increase for the Pending Home Sales Index in 10 months and moves the index to its highest reading of 2014.

Furthermore, the increase raises the Pending Home Sales Index closer to its benchmark reading of "100".

When the Pending Home Sales Index reads 100, it's meant to represent the U.S. housing market as it existed in 2001, the year in which the index first launched. 2001 was considered a good year for U.S. housing.

This year's market is running slightly below its 2001 equivalent.

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Expect More Home Sales, Higher Home Prices

Prior to March, the Pending Home Sales Index had dropped through nine straight months. It's no surprise, then, that the highly-correlated Existing Home Sales report has dropped over a similar time period, too.

The most recent Existing Home Sales report put U.S. home resales on a three-month skid, and at its lowest point since mid-2012.

However, with the Pending Home Sales Index rising, and given the link between "homes under contract" and "homes closed", we should plan for an increase in the closed sales for the next several months.

Here's what to expect for April and May :

  • April 2014 : 4.56 million homes sold on seasonally-adjusted, annualized basis
  • May 2014 : 4.72 million homes sold on seasonally-adjusted, annualized basis

Expect rising home prices, too.

With home supplies scarce, homes for sale are selling quickly. In March, 37% of homes sold in 30 days or fewer in March and, at the current pace of sales, the complete U.S. inventory would sell-out in just 5.2 months.

Supply of less than 6.0 months suggests a "Seller's Market". As compared to last year, home values are up close to 8 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. 

Get Today's Live Mortgage Rates

After a slow winter season, buyers and sellers are writing more contracts. With mortgage rates low, homes remain affordable, too. Savvy buyers are getting ahead of the spring season rush.

Get today's mortgage rates and see for how much home you'll qualify. Rates are available online at no cost, with no obligation to proceed, and with no social security number required to get started.

Click here to get today's live mortgage rates.

The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.

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