Pending Home Sales Index Forecasts Return to Stronger Housing Market
Here are the facts: The Pending Home Sales Index, published by the National Association of Realtors was down 7.0% in July, to a level of 105.6. That number is 16.0% lower than it was a year earlier.
The index is derived from pending sales of existing homes; a sale is listed as pending when the Florida mortgage loan contract has been signed, but the transaction has not closed; pending sales typically are finalized within a month or two of signing.
Here is the resulting good news: An index of 100 is equal to the average level of contract activity during 2001, the first of five consecutive record years for existing-home sales. In other words: the drop from 113.5 in June to the current 105.6 is very good news for those hoping the Florida housing market would return to a stable, strong state.
David Lereah, NAR’s chief economist, said there’s a closer relationship between annual changes in the index and actual market performance than there is with month-to-month comparisons.
“In looking at year-to-year comparisons, the pending home sales index has been very close in predicting the actual pace of home sales,” Lereah said. “Based on recent changes from a year ago, the index shows existing-home sales should continue to ease after a stronger-than-expected decline in July, but are likely to flatten in the months ahead.”
But why the decline in July sales? Lereah actually pointed to psychological factors because the current deals available on Florida home loans and the econony should appeal to hopeful owners.
“We’ve never seen a general decline in the housing market against a healthy economic backdrop where jobs are being created, the economy in growing and interest rates are favorable,” Lereah said. “Psychological factors are causing some buyers to remain on the sidelines, waiting for prices to stabilize or for more favorable news about the market and the economy.”
He went on to comment on the plethora of negative news stories - but displayed confidence that underlying market fundamentals will prevail and Florida home mortgage demand would return to healthy levels.
