US: Pending Home Sales Index

Wed Jan 31 09:00:00 CST 2018

Consensus Consensus Range Actual Previous Revised
Pending Home Sales Index - M/M 0.5% -0.3% to 1.0% 0.5% 0.2% 0.3%
Pending Home Sales Index - Level 110.1 109.5 109.6

Existing home sales, the result of very tight supply, have been flat though today's pending home sales index, up an as-expected 0.5 percent in December, does point to improvement ahead.

The South is by far the biggest region in resale activity and pending sales rose 2.6 percent in the month for what is still a moderate 4.0 percent year-on-year rate. Sales in the West rose 1.5 percent in the month but are down a yearly 3.1 percent. Sales in the Northeast and Midwest were down in the month and flat to slightly negative on the year.

Overall pending sales are up only 0.5 percent from December 2016 (same rate as the monthly gain), quite a contrast to new home sales which rose 14 percent last year. Still, today's report is a positive for resales where imbalance, that is lack of homes on the market, has been a striking feature.

Market Consensus Before Announcement
Pending home sales have been doing a good job of tracking final sales of existing homes, jumping in October and then leveling off in November vs what proved to be an actual surge in November and slight dip back in December. The Econoday consensus for December's pending sales index is a solid 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.