Home Buyers Are Out In Full Force, Do You Believe It?

Sales Are Increasing

On Tuesday, The National Association of Realtors (NAR) published a report stating that Pe nding Home Sales ticked higher in December 2008. For clarification’s sake, a “pending home sale” is a home under contract to sell, but not yet closed.

NAR positions Pending Home Sales report as a predictor of future activity, suggesting that home sales will spike 60 days later.

This is good news for the economy.

Pending Sales Can Sometimes Be Misleading

However, despite the Pending Home Sales report’s correlation to the actual number of homes sold in the future, this may not be the report’s best use. It’s because of what Pending Homes Sales doesn’t measure.

Specifically not included in Pending Homes Sales are:

Sales of new construction homes
Sales of For Sale By Owner properties
80 percent of non-surveyed MLS transactions

The Proof is in the Pudding

It should be noted that Pending Home Sales tracks contracts — not closings. Until a home is sold and closed, nothing has really happened in the economy. This small detail is especially relevant in a market like this in which finding mortgage financing isn’t always so easy.

Pending Sales Reports Still Have Their Place

Pending Home Sales still has its place, though. It’s a terrific look at the current buy-side demand for homes. Clearly, low mortgage rates and falling home prices are making an impact and this is why the December’s Pending Home Sales report is so important. It’s the third housing report this month that shows the demand for homes rising while the supply of homes falls.

The other two reports:

The number of “used” homes sold monthly is rising
The number of new homes being built are falling

This is good news for sellers and for the economy. If housing is expected to lead the U.S. out of recession, the seeds for that recovery may have already been planted. Remember though, don’t count your seeds before they grow!

(Image kudos: The Wall Street Journal)