US: Pending Home Sales Index

Thu Oct 26 09:00:00 CDT 2017

Consensus Consensus Range Actual Previous Revised
Pending Home Sales Index - M/M 0.4% -1.9% to 1.9% 0.0% -2.6% -2.8%
Pending Home Sales Index - Level 106.0 106.3 106.0

Existing home sales have been flat and flat is the indication from pending sales which were unchanged in September. The index is stuck at 106.0, having moved down from a peak in November last year of 112.3.

Unlike yesterday's new home sales report where sales spiked in the South, resales in the region are showing visible hurricane effects, down 2.3 percent in the month following August's 3.7 percent decline. Year-on-year rates show the South the weakest, down 5.0 percent, with the Northeast doing the best at minus 2.4 percent. Pending sales overall are down a yearly 3.5 percent which is slightly steeper than the 1.5 percent decline for final sales.

This report is not pointing to strength for the housing sector and is a partial offset to a possible surge underway in new home sales.

Market Consensus Before Announcement
Pending sales, which track initial contract signings for resales, have been accurately forecasting this year's steady weakness in the existing home sales report where final sales are tracked. Weakness in August pending sales included the hurricane-hit South but other regions were soft as well. After August's surprisingly sharp 2.6 percent drop, the Econoday consensus for the September pending sales index is a gain of 0.4 percent.

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.