Pending Contract Forecast Good News for Home Sales

The National Association of Realtors (NAR) maintains a Pending Home Sales Index (PHSI) which keeps tract of approximately 20 representative markets throughout the United States.  The Index monitors signed contracts on existing homes because research has found that Parkside-21keeping tabs on contracts that have been signed usually translate in numbers and statistics to closed home sales approximately 1 to 2 months after the contract is signed.  Using this index, The NAR can predict home selling trends as the real estate industry slowly and steadily recovers from the Recession.  The PHSI has shown that pending home sales have been increasing over the last three months.  The Index showed a .8% increase in November bringing it to 4.1% higher than November, 2013.  This is the largest increase since over 15 months before when there was an over 5% increase in August, 2013.

“The consistent economic growth and steady hiring we’ve seen the second half of this year is giving buyers enough assurance to consider purchasing a home before year’s end,” said Lawrence Yun, NAR chief economist. “With rents now rising at a seven-year high, historically low rates and moderating price growth are likely to entice more buyers to enter the market in upcoming months.”

Another factor that has greatly helped with consumer optimism is the drastic fall in gas prices.  While the durability of this decrease is still very much in question, it has definitely help ease potential home buyers’ monthly expenses, making it possible in some cases to be able to afford the 6% average down payment that is currently required by lenders to get into a home.  However, programs are being implemented by Fannie Mae Parkside-15and Freddie Mac that will back loans with a 3% down payment making it even more affordable for buyers and first-time home buyers to be able to enter the market for the first time in 7 years.

“There’s still misperception out there that a much higher downpayment is needed, while that’s not the reality,” adds Yun.

In the South, the PHSI went up 1.3% to 119.7, which is 5.1% higher than this same time last year.  Even though home sales overall are expected to be “down” (494 million homes sold) by the end of 2014, there is expected to be an increase to home sales in 2015 because of low interest rates, loosening credit requirements, and stabilizing home prices.  In order to regain its footing after the Recession, home prices went up by over 11% in 2013, but they only rose moderately overall in 2014 and are expected to grow at an average rate of 4% – 5% over the next two years, which is the sign of a healthy housing market.  If the pending home sales are any indicator of the health of real estate (which statistically, it is!), then there is every indication that the housing market is continuing to move forward and upward in growth and recovery into 2015.


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