U.S. pending home sales rose in October — the third straight month of increases — according to the National Association of Realtors. All four major regions in the U.S. saw monthly gains in transactions, with the Northeast region leading the way. On an annual basis, contract signings increased in all four regions of the United States, led by the West.
The Pending Home Sales Index (PHSI)* – a forward-looking indicator of home sales based on contract signing – rose 2.0% to 77.4 in October. On a year-on-year basis, pending transactions expanded by 5.4%. The index of 100 is equivalent to the level of contract activity in 2001.
Lawrence Yun, chief economist at the National Association of Realtors, said the momentum of home purchases is building after nearly two years of pent-up home sales. “Even as mortgage rates rise modestly despite the Fed’s decision to cut its short-term interbank lending rate in September, continued job additions and more housing inventory are bringing more consumers to market.”
Regional Details of U.S. Pending Home Sales
The Northeast PHSI jumped 4.7% from last month to 68.7, up 7.2% from October 2023. The Midwest index grew 4.0% to 77.8% in October, up 1.8% from a year earlier.
The Southern PHSI rose 0.9% to 90.0 in October, up 2.5% from a year ago. The West Index rose 0.2% from the previous month to 64.1, up 16.8% from October 2023.
“It is encouraging to see an increase in contract signings in all major regions of the country. More notable gains than last year occurred in the expensive areas of the northeast and west. The record high stock market provides a boost to high-end home buyers.”
Pending home sales index and its role in the housing sector
The National Association of Realtors is the largest trade association in America, representing 1.5 million members involved in all aspects of the residential and commercial real estate industries. About the National Association of Realtors term REALTOR® is a registered collective membership mark that identifies a real estate professional who is a member of the National Association of Realtors and adheres to its strict code of ethics. For free consumer guides on navigating home buying and selling transactions – from written buyer agreements to Negotiation of compensation.
The Suspended Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. The sale is listed as pending when the contract is signed but the transaction is not closed, although the sale is usually completed within a month or two of signing.
Pending contracts are good early indicators to close upcoming sales. However, the amount of time between pending contracts and completed sales is not identical for all home sales. The difference in the length of the process from a pending contract to a closed sale may be due to issues such as difficulties the buyer faces in obtaining mortgage financing, home inspection issues, or valuation issues.
The index is based on a sample that covers about 40% of the multiple listing service data each month. In the development of the index model, it was established that the level of activity of monthly sales contracts is equivalent to the level of sales of closed existing homes in the following two months.
The 100 index equals the average level of contract activity during 2001, the first year examined. Coincidentally, the volume of existing housing sales in 2001 fell in the range of 5.0 to 5.5 million, which is normal for the current U.S. population.
Comparison of monthly US pending housing sales with other housing market indicators
Pending housing sales data is a key indicator in the housing market landscape. Here’s how it compares to other housing market indicators:
Existing Home Sales: Existing housing sales data reflects the actual number of completed transactions for previously owned homes. On the other hand, pending home sales represent contracts signed but not yet closed. Pending home sales can be an indicator of future existing housing sales activity.
New Home Sales: New home sales data tracks the number of newly built homes sold over a specific period. Pending home sales can provide insights into future demand for new homes, as higher pending sales may indicate potential growth in new home sales.
Housing start-up: Housing start-up data measures the number of new residential construction projects that started during a given period. Pending housing sales can provide indications of future demand for housing start-ups, as a strong pending sales report may indicate increased demand for new construction.
House Price Indices: House price indices, such as the Case Schiller Index, track changes in house prices over time. Pending home sales data, although not directly related to home prices, can influence pricing trends. Higher pending sales may lead to increased competition and higher potential prices in the future.
Mortgage applications: Mortgage application data provides insights into the current mortgage demand for home purchases and refinancing. Pending home sales figures can affect mortgage application trends, as a strong pending sales report may lead to an increase in mortgage applications.
By looking at how pending home sales data compares and interacts with other housing market indicators, analysts, policymakers and investors can gain a more comprehensive understanding of the dynamics within the real estate market and make informed decisions based on a broader perspective of the housing sector.
