U.S. Pending Home Sales Slump Unexpectedly, Adding to Market Woes

by Ike Obudulu Posted on May 30th, 2019

Washington: After reporting a sharp increase in U.S. pending home sales in the previous month, the National Association of Realtors released a report on Thursday showing pending home sales unexpectedly pulled back in the month of April.

NAR said its pending home sales index tumbled by 1.5 percent to 104.3 in April after surging up by 3.9 percent to an upwardly revised 105.9 in March.

The pullback came as a surprise to economists, who had expected pending home sales to climb by 0.9 percent compared to the 3.8 percent jump originally reported for the previous month.

With the monthly decrease, pending home sales in April were down by 2.0 percent compared to the same month a year ago, reflecting the 16th straight month of annual declines.

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.

NAR chief economist Lawrence Yun said the unexpected drop in pending sales has yet to account for some of the more favorable trends toward homeownership, such as lower mortgage rates.

“Though the latest monthly figure shows a mild decline in contract signings, mortgage applications and consumer confidence have been steadily rising,” Yun said. “It’s inevitable for sales to turn higher in a few months.”

Pending home sales plunged by 2.5 percent in the South and slumped by 1.8 percent in both the Northeast and West. On the other hand, pending home sales in the Midwest surged up by 1.3 percent.

The monthly decline adds to signs of a soft housing market amid an economy that may be losing some steam. Previous data showed sales of both new and existing homes fell in April while single-family housing permits dropped to the lowest level in almost two years.

At the same time, low mortgage rates, more affordable properties and rising wages should support demand, and contract activity remains higher than in late 2018.

Pending home sales are often looked to as a leading indicator of existing home purchases and a measure of the health of the housing market in the coming months.

Why Markets Care About Pending Home Sales (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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