U.S. Pending Home Sales Accelerate Downtrend In December

by Ike Obudulu Posted on January 30th, 2019

Washington D.C., USA: The National Association of Realtors released a report on Wednesday unexpectedly showing a continued decrease in U.S. pending home sales in the month of December – reflecting several negative factors.

NAR said its pending home sales index tumbled by 2.2 percent to 99.0 in December after falling by 0.9 percent to a downwardly revised 101.2 in November.

The continued decline in pending home sales surprised economists, who had expected the index to climb by 0.5 percent.

A pending home sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale.

Compared to the same month a year ago, pending home sales plunged by 9.8 percent, reflecting the twelfth straight month of annual decreases.

“The stock market correction hurt consumer confidence, record high home prices cut into affordability and mortgage rates were higher in October and November for consumers signing contracts in December,” said NAR chief economist Lawrence Yun.

The unexpected decrease in pending home sales was partly due to a steep drop in the South, where pending sales plummeted by 5 percent.

Pending home sales in the Midwest also fell by 0.6 percent, while pending sales in the Northeast and West jumped by 2.0 percent and 1.7 percent, respectively.

Despite the low home sales in December, Yun said he is confident that the housing market will see improvement in 2019. ”

“The longer-term growth potential is high. The Federal Reserve announced a change in its stance on monetary policy,” Yun said. “Rather than four rate hikes, there will likely be only one increase or even no increase at all.”

“This has already spurred a noticeable fall in the 30-year, fixed-rate for mortgages,” he added. “As a result, the forecast for home transactions has greatly improved.”

The National Association of Realtors is America’s largest trade association, representing 1.3 million members involved in all aspects of the residential and commercial real estate industries.

Why Markets Care About Pending Home Sales Also Called Pending Resales

Pending Home Sales report is released monthly, about 28 days after the month ends, by the National Association of Realtors (NAR).

It measures change in the number of homes under contract to be sold but still awaiting the closing transaction, excluding new construction.

Pending Home Sales is a leading indicator of economic health because the sale of a home triggers a wide-reaching ripple effect. For example, renovations are done by the new owners, a mortgage is sold by the financing bank, and brokers are paid to execute the transaction.

The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.

The index is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months.

An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined. By coincidence, the volume of existing-home sales in 2001 fell within the range of 5.0 to 5.5 million, which is considered normal for the current U.S. population.

Pending Home Sales data is released about a week later than Existing Home Sales, but it’s more forward-looking as a contract is signed several weeks before the home is counted as sold.

The usual effect is that ‘Actual’ greater than ‘Forecast’ is good for the dollar and vice versa.

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