Understanding the Pending Home Sales Index
by: RobKosberg |
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The National Association of Realtors measures the number of pending homes nationwide on a monthly basis. They do this by tracking when there is a status change from an active listing to a pending sale via the Multiple Listing Service. This is called the Pending Home Sales Index.
The NAR assumes that 75%-80% of all homes pending will close within 60 days while the remaining will close within 120 days. Thus it is considered a prediction of future home sales.
But, although using the Pending Home Sales report as a crystal ball may be its intended use, it may not its best use. This is because of the index's methodology: 1. It doesn't measure new construction homes 2. It doesn't track For Sale By Owner properties 3. Its sample set covers just 20 percent of MLS transactions
In addition, in a tough mortgage climate such as the one we're in now, a greater percentage of pending sales will fail to close at all because of lack of financing.The Pending Home Sales Index still has its place, however -- it's a terrific look at the buy-side demand for homes.
When the Pending Home Sales Index is rising, we can infer that more buyers are in the market for homes and this is a signal of market strength. After all, pending sales can't happen unless there are buyers out there. And with more buyers competing for homes, home prices tend to rise.
The Pending Home Sales Index experienced a large increase in June 2008 for the 2nd time in 3 months. This occured even as most economists were calling for a decline. This indicates an overall gain in the market for demand.
Again, this does not show us exactly how many of these transactions have closed. We only know from this data that the market demand is increasing since more buyers are putting houses under contract. And typically when buyer demand is increasing then we can assume the real estate market will not be far bhind.
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About the Author
If you are in the market to Buy a Home then check out Rob Kosbergs' Detailed FREE Report on Buying your Dream Home with a No Money Down Mortgage or for up to date Mortgage info visit my Mortgage Blog
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