The Pending Home Sales Index measures housing contract activity. It is based on signed real estate contracts for existing single-family homes, condos and co-ops. A signed contract is not counted as a sale until the transaction closes. Therefore, it is considered a leading indicator of housing activity.
In April, the index jumped 6.7% to 90.3, the highest reading since September and the third monthly increase. Moreover, pending home sales are up 3.2% versus a year ago.
The data shows that low interest rates and the $8,000 tax credit for new home buyers have sparked interest in the residential housing market.
A recovery in housing sales as well as stabilization in prices are a key ingredient in the recipe for an ongoing economic recovery. I would still like to see a sustained improvement in the Purchase Index from the Mortgage Bankers Association, but today’s report is good news.
One final point, note how pending home sales were recovering in 2008 and peaked in August, the month prior to the blow up in the credit markets. You can clearly see how the credit freeze and the subsequent demise of confidence sent potential homebuyers scurrying for cover.
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