US: Pending Home Sales Index

Thu Oct 29 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
Pending Home Sales Index - M/M 1.0% -1.0% to 2.5% -2.3% -1.4% -1.4%
Pending Home Sales Index - Level 106.8 109.4 109.3

The outlook for the housing sector has turned lower this week, first on Monday's very weak new home sales report followed by today's September index on pending sales of existing homes which is down a very sharp 2.3 percent. The report cites lack of low priced homes on the market as a key negative that is pulling down total sales and keeping out first-time buyers. Uncertainty in the financial markets is also cited, perhaps making buyers take a wait-and-see approach.

Year-on-year, pending sales are up only 3.0 percent which is very weak and far below the nearly double-digit pace for final sales of existing homes. All regions show low to mid single-digit declines in the month.

The housing sector, which just last week seemed a certain area of strength, may now be a liability for the economy.

Market Consensus Before Announcement
Pending home sales are expected to bounce back from August's 1.4 percent decline with a 1.0 percent gain in September. Sales of existing homes, boosted by low mortgage rates and moderate prices, have been strong this year though they did slow during the summer.

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.