| Understanding the Pending Home Sales Index |
| Articles - Mortgage |
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When home sellers accept a contract on MLS-listed property, the property's official status changes from "Active" to "Pending". By measuring the number of "Pending" homes nationwide, the National Association of Realtors publishes its once-monthly Pending Homes Sales Index.
When home sellers accept a contract on MLS-listed property, the property's official status changes from "Active" to "Pending". By measuring the number of "Pending" homes nationwide, the National Association of Realtors publishes its once-monthly Pending Homes Sales Index. The real estate industry views the index as a sign of future home sales. They do this with the assumption that 80% of all homes pending will close within 2 months and the remainder will close with 4 months. The index is intended to predict home sales but it may not be it's best use for several reasons. 1. It doesn't track FSBO sales 2. It samples only 20% of all the MLS transactions 3. it doesn't take into consideration new construction. Since many transactions do not close these days due to the mortgage crisis the PHSI may be skewed. it is, however, a great way to assess buyer demand for real estate on a month to month basis. When the Pending Home Sales Index is rising, we can infer that more buyers are in the market for homes and this is a signal of market strength. After all, pending sales can't happen unless there are buyers out there. And with more buyers competing for homes, home prices tend to rise. In June -- for the second time in three months -- the Pending Home Sales Index posted a large gain even as economists were calling for a loss. The inference here is that buyers are not only finding good value in all four regions of the country, but are willing to make bids on homes listed for sale. Since the PHSI doesn't indicate closed transactions we only know that demand is greater and that buyers are finding this a good time to move forward with a purchase. This tracking makes the Pending Home Sales Index a worthwhile source of market data since we know that greater demand will usually result in higher real estate prices in the future. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. If you are in the market to Buy a Home then visit Rob Kosbergs' Detailed FREE Guide on Buying your Dream Home with a No Money Down Mortgage or for up to date Mortgage info visit my Mortgage Blog |