Residential Real EstateReal Estate Outlook: Pending Home Sales Rise in April
The single most accurate forecast tool for housing activity is the "Pending Home Sale Index" compiled by the National Association of Realtors.
It"s based on actual home sales contracts signed by buyers and sellers -- but not yet closed -- from around the U.S.
For much of the past 12 months, the index has trended negative or flat. But the latest index, released this past Monday, was a big surprise.
Rather than falling again -- as was widely predicted by Wall Street analysts -- it rose by 6.3 percent on sales contracts signed during April and heading for closings in the next couple of months.
How could pending real estate sales be heading up while consumer confidence is down, the unemployment rate just hit five and a half percent, and everybody"s glooming and dooming over gas prices and recession?
The home price-mortgage rate equation, which has been getting more compelling for buyers sitting on the sidelines.
In dozens of major markets, the price adjustments during the past two years have been dramatic. From the peak of the boom to this Spring, prices are down by 20 to 25 percent and more in some cases -- especially in parts of California, Florida, Arizona, and Nevada.
Add to that the heavy discounting going on in many local areas by banks disposing of houses they"ve taken back through foreclosure or sold through short sales, and you"ve got key ingredients for a "tipping point" situation, where serious buyers recognize the opportunities, and start flowing back into the market.
Then add in low interest rates, which are still hovering close to 6 percent for 30 year loans and five and a half percent for 15 year, and you can make a very strong, objective case that the home price-mortgage rate equation is more favorable to buyers right now than it"s been any time in the last six or seven years.
Obviously this alone isn"t going to pull us out of the real estate slump. Better national employment growth numbers and higher consumer confidence would be helpful on that score -- but we"re not seeing those moves at the moment.
Be thankful for even small nuggets of good news. A rise in pending home sales is a positive and encouraging sign for sellers, buyers and real estate professionals.
This could signal a trend that continues for months -- or it could turn out to be a flash in the pan -- a short-lived statistical aberration.