US: Pending Home Sales Index

Wed Dec 27 09:00:00 CST 2017

Consensus Consensus Range Actual Previous
Pending Home Sales Index - M/M 0.5% -1.0% to 5.0% 0.2% 3.5%
Pending Home Sales Index - Level 109.5 109.3

The pending home sales index has been flat and has not been in line with the strength of final sales of existing homes. This may limit the impact of today's report where the November index managed only a 0.2 percent gain to a 109.5 level that is still below last year's levels. In contrast, existing home sales, at a 5.810 million annualized rate in data released last week for November, are at the highest level of the economic expansion. The pending index is up only 0.8 percent vs this time last year, again well below final sales where the year-on-year gain is 3.8 percent.

The regional breakdown in today's report shows small declines in the West and South, a small gain for the Midwest and a sharp 4.1 percent jump for the Northeast where home sales, both resales and new home sales, have been showing marked acceleration.

Housing data in general have been accelerating strongly going into year end but the pending home sales index, though it did rise a sharp 3.5 percent in last month's report for October, has been mostly an exception.

Market Consensus Before Announcement
Led by a hurricane bounce in the South, the pending home sales index jumped a much sharper-than-expected 3.5 percent in October to correctly predict strength in existing home sales for November. The Econoday consensus for November's pending sales index is a gain of 0.5 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.