US: Pending Home Sales Index

The NAR's pending home sales index is up 2.0 percent to 72.0 in February after an unrevised 70.6 in January. The increase is somewhat below the consensus of up 2.9 percent in the Econoday survey of forecasters. The index is down 3.4 percent from February 2024. The increase in February is concentrated in contracts taken out in the South where the index is up 6.2 percent from the prior month. This may reflect a bounce back from cold weather in January. Elsewhere, the index for the Midwest is up 0.7 percent, while down 0.9 percent in the Northeast and 3.0 percent in the West.

Pending home sales are those for contract signed in the month which will close in the coming month or two. The pace of contracts signed remains relatively modest despite moderation in mortgage rates. There may be some hesitancy to enter the housing market in the current uncertain economic outlook with its attendant worries about job security.

The Freddie Mac weekly rate for a 30-year fixed rate mortgage reached a near term peak of 7.04 percent in the January 16 week. It has fallen steadily since then to a low of 6.76 percent in February and 6.63 in the March 6 week.

Sales are seen recovering by 2.9 percent in February after dropping 4.5 percent in January.

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.