After 3 straight months of improvement, the Pending Home Sales Index slid lower in September. As compared to August, September’s reading fell 2 percent.
A “pending home sale” is a home under contract to sell, but not yet closed. The data is drawn from a combination of local real estate associations and national brokers, and represents 20 percent of all purchase transactions in a given month.
Because of the large sample set, and because 80 percent of homes under contract close within 60 days, the Pending Home Sales Index is a terrific future indicator for the housing market. A high correlation exists between the Pending Home Sales Index and the NAR’s monthly Existing Home Sales report issued two months hence.
Expect home sales to idle into the New Year, therefore.
Consider than, since June, the volume of both new home sales and existing home sales has increased, causing the available home inventory to fall by months. Meanwhile, helped by low interest rates, demand from buyers has remained relatively stable.
As with everything in economics, falling supply with constant demand leads to higher prices.
Therefore, the Pending Home Sales Index’s fading September figures suggest a more balanced supply-and-demand curve in the months ahead, a move that should suppress rising home prices and shift negotiation leverage back to the buy-side.
So long as mortgage rates remain rock bottom, the autumn season is looking like a terrific time to buy.