Pending Home Sales Index Approaches “Tax Stimulus” Levels

The pace at which homes are going under contract to sell is increases. In July, for the third time this year, the Pending Home Sales Index surpassed the 100-value threshold, climbing to 101.7.

The housing market continues is slow, steady pace of recovery.

Highest Reading Since April 2010

The Pending Home Sales Index is a monthly housing metric from the National Association of REALTORS®. It measures the number of homes going into contract that are not yet sold.

Historically, 80 percent of “pending” homes go to settlement within 60 days of contract, with the majority of the remaining homes closing within months 3 and 4. As a result, the monthly Pending Home Sales Index data often correlates with NAR’s Existing Home Sales report — a report of homes actually closed — two months into the future.

The Pending Home Sales Index is a forward-looking indicator for housing and it points to a strong fall season. Homes have not gone to contract at such a furious pace since April 2010, the last month of that year’s federal home buyer tax credit.

In April 2010, the Pending Home Sales Index read 111.5.

Purchase Mortgage Applications Rising

There are two noteworthy data points in the July Pending Home Sales Index.

First, the index posted north of 100. This matters because of how the Pending Home Sales Index is “scored”. It’s a relative index, based on housing market activity in 2001, the metric’s first year of existence.

2001 happened to be a good year for housing.

When the Pending Home Sales is higher than 100, therefore, it suggests that the housing market is doing better than it did in 2001. Conversely, when the Pending Home Sales Index is below 100, it suggests that the housing market is trailing what it did in 2001.

This year’s housing market is in stark contrast to the market of the last few years :

• May 2010 – February 2012 : The Pending Home Sales Index crossed 100 zero times
• March 2012 – July 2012 : The Pending Home Sales Index crossed 100 three times

Furthermore, with mortgage rates low and momentum building, the number of purchase mortgage applications continues to rise. As reported by the Mortgage Bankers Association, the Purchase Index rose a seasonally-adjusted 1 percent last week from the week prior.

Low Downpayment Options For Home Buyers

It’s a terrific time to be a home buyer. Home prices remain relatively low, mortgage rates are sub-4.000 percent, and low-downpayment mortgage programs are readily available. The FHA offers a 3.5% downpayment mortgage, and the USDA and VA both offer 100% financing options to qualified home buyers.