US: Pending Home Sales Index

Thu Jan 29 09:00:00 CST 2015

Consensus Consensus Range Actual Previous Revised
Pending Home Sales Index - M/M 0.9% 0.3% to 1.9% -3.7% 0.8% 0.6%
Pending Home Sales Index - Level 100.7 104.8 104.6

Indications on housing had been turning up -- but not after today's pending home sales index which fell a very steep 3.7 in December. A decline was not expected at all with the result far underneath the Econoday low estimate for plus 0.3 percent. All regions show single digit declines in the month including the two most closely watched regions, the South (down 2.6 percent) and the West (down 4.6 percent).

Final sales of existing homes did pop higher in last week's report for December but amid a still flat trend. Today's pending sales report doesn't point to any improvement, which is a bit of a mystery given how low mortgage rates are and how strong the job market is.

Market Consensus Before Announcement
The pending home sales index picked up steam in November, to 104.8 from a revised 104.0 in October for a better-than-expected gain of 0.8 percent. The regional breakdown showed only narrow differences in the month with small gains in the Northeast, South, and West and a small decline in the Midwest.

The National Association of Realtors developed the pending home sales index as a leading indicator of housing activity. Specifically, it is a leading indicator of existing home sales, not new home sales. A pending sale is one in which a contract was signed, but not yet closed. It usually takes four to six weeks to close a contracted sale.

This provides a gauge of not only the demand for housing, but the economic momentum. People have to be feeling pretty comfortable and confident in their own financial position to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as the pending home sales index which measures home resales, investors can gain specific investment ideas as well as broad guidance for managing a portfolio.

Even though home resales don't always create new output, once the home is sold, it generates revenues for the realtor. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items home buyers might purchase. The economic "ripple effect" can be substantial especially when you think a hundred thousand new households around the country are doing this every month.

Since the economic backdrop is the most pervasive influence on financial markets, home resales have a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the existing home sales data carry valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies.

The National Association of Realtors moved up its publication schedule in 2011. Prior to 2011, the reference month was two months trailing the release date. In 2011, the reference month trails only by one month to the release month.