US: Pending Home Sales Index

Mon Nov 30 09:00:00 CST 2015

Consensus Consensus Range Actual Previous Revised
Pending Home Sales Index - M/M 1.0% -0.4% to 3.6% 0.2% -2.3% -1.6%
Pending Home Sales Index - Level 107.7 106.8 107.5

Sales of existing homes have been soft and are not likely to pick up in the next few months based on October's pending sales index which is up only 0.2 percent. Year-on-year, the index is up 3.9 percent which matches the rate of gain for final sales during October. Flatness, unfortunately, is the theme.

The Northeast did the best in October, up 4.5 percent for a year-on-year plus 6.8 percent. The West is next with pending sales up 1.7 percent for a year-on-year gain of 10.4 percent. Bringing up the rear are the Midwest, down 1.0 percent on the month for a year-on-year plus 3.3 percent, and the largest region which is the South, down 1.7 percent in October for the only negative year-on-year reading of minus 0.3 percent.

The National Association of Realtors cites low supply of available homes as a negative for sales and warns that prices in some markets are rising too fast, especially for first-time buyers. The association cites strength in the Northeast as an example, a region where price appreciation is lower and supply greater.

The new home market isn't doing that much better than existing homes, with sales up 4.9 percent year-on-year in the latest available data. Watch for construction spending on tomorrow's calendar, one aspect of the housing market that has been showing solid strength.

Market Consensus Before Announcement
Pending home sales have been very disappointing the last two reports and have accurately predicted weakness in the existing home sales report. But the Econoday consensus is calling for a moderate bounce higher, at a consensus plus 1 percent for the October report in a result that would give a small lift to what right now is no better than a mixed outlook for the housing market.

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.