Washington: After reporting a steep drop in U.S. pending home sales in the previous month, the National Association of Realtors released a report on Wednesday showing pending sales rebounded by much more than anticipated in the month of January.
NAR said its pending home sales index spiked by 4.6 percent to 103.2 in January after tumbling by 2.3 percent to a downwardly revised 98.7 in December.
Economists had expected pending home sales to rise by 0.4 percent compared to the 2.2 percent slump originally reported for the previous month.
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.
“A change in Federal Reserve policy and the reopening of the government were very beneficial to the market,” said NAR chief economist Lawrence Yun.
He added, “Homebuyers are now returning and taking advantage of lower interest rates, while a boost in inventory is also providing more choices for consumers.”
Despite the monthly increase, pending home sales in January were down by 2.3 percent compared to the same month a year ago.
NAR said three of the four major regions of the country experienced a decline compared to a year ago, while the Northeast enjoyed a slight growth spurt.
Looking ahead, Yun said the positive pending home sales figures in January are likely to continue, noting, “Income is rising faster than home prices in many areas and mortgage rates look to remain steady.”
Next Tuesday, the Commerce Department is scheduled to release government shutdown-delayed data on new home sales in the month of December.
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.