US: Pending Home Sales Index

Thu May 28 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
Pending Home Sales Index - M/M 0.8% -1.7% to 2.5% 3.4% 1.1% 1.2%
Pending Home Sales Index - Level 112.4 108.6 108.7

Pending home sales are sending off the most consistently positive signals of any housing indicator. Up now for four straight months, pending home sales jumped a much higher-than-expected 3.4 percent in April following an upward revised 1.2 percent gain in March. April gains were concentrated in the Northeast and Midwest with the South up slightly and the West up fractionally.

Pending home sales are up 14.0 percent year-on-year, far ahead of final sales of existing homes which are up only 6.1 percent. Credit issues surrounding closings don't seem to be a major headwind right now for the housing sector and are probably not obstacles for gains in final sales. Indications right now from the housing sector are uneven but some reports, especially this one, are showing strength.

Market Consensus Before Announcement
Pending home sales have been on a tear, up for three straight months and contrasting with what have been weaker results in final sales of existing homes. Forecasters see a solid 0.8 percent gain for the April report though the range is quite wide with a low reading of minus 1.7 percent, one that would once again lower the housing outlook.

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.