U.S. Pending Home Sales Downtrend Continues In November

by Ike Obudulu Posted on December 28th, 2018

Washington D.C., USA: The National Association of Realtors released a report on Friday showing a continued drop in pending home sales in the month of November – with decreases in the South and Midwest more than offsetting increases in the Northeast and West.

NAR said its pending home sales index fell by 0.7 percent to 101.4 in November after plunging by 2.6 percent to 102.1 in October. The continued decline in pending home sales matched economist estimates.

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 slumped by 7.7 percent, reflecting the eleventh straight month of annual decreases.

“The latest decline in contract signings implies more short-term pullback in the housing sector and does not yet capture the impact of recent favorable conditions of mortgage rates,” said NAR chief economist Lawrence Yun.

While pending contracts have fallen to their lowest level since 2014, Yun said there is no reason to be overly concerned and predicts solid growth potential for the long-term.

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The continued decrease in pending home sales in November came as pending sales in the South and Midwest tumbled by 2.7 percent and 2.3 percent, respectively.

On the other hand, the report said pending home sales surged up by 2.7 percent in the Northeast and by 2.8 percent in the West.

Yun predicted the partial government shutdown will harm the housing market, as flood insurance is not available in the current shutdown.

“That means that roughly 40,000 homes per month may go unsold because purchasing a home requires flood insurance in those affected areas,” Yun said. “The longer the shutdown means fewer homes sold and slower economic growth.”

However, Yun believes there are good longer-term prospects for home sales, noting home sales are clearly underperforming job growth compared to the turn of the century.

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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