Homes are going under contract at a quickening pace.
In May, for the second time in 3 months, the Pending Home Sales Index crossed the 100 barrier, stretching to 101.1. A “pending home sale” is a home under contract to sell, but not yet sold.
Statistically, the Pending Home Sales Index reading is significant for two reasons.
First, the index’s reading is at its highest since April 2010. From this, we infer that today’s pace of home buying in Indiana and nationwide is approaching the “stimulated” levels of two years ago — but without the federal stimulus.
This is a positive signal for the housing market.
Second, because the Pending Home Sales Index is a relative index; and, because it was assigned a value of 100 upon its inception in 2001, readings higher than 100 imply that the housing market is performing better than it did during the index’s first year.
2001 happened to be a strong year for housing. 2012, it seems, is shaping up to be a better one.
And, there’s another reason why the Pending Home Sales Index matters so much to buyer and sellers of Indianapolis and Central Indiana– the Pending Home Sales Index is among the few “forward-looking” housing market indicators.
Rather than report on how the housing market looked 30-60 days in the past, as the Case-Shiller Index does; or the Existing Home Sales report, the Pending Home Sales Index looks 30-60 days to the future.
80% of homes under contract sell within 2 months so, as the Pending Home Sales Index goes, so goes housing. Based on May’s data, therefore, we can assume that home sale figures will rise through the summer.
Home contract signings have now rose for the 14th straight month, according to the National Association of Realtors, which reported pending home sales rising 13.3% over May 2011 and up nearly 6% over April 2012.
“The housing market is clearly superior this year compared with the past four years,” said Lawrence Yun, NAR chief economist. “Actual closings for existing-home sales have been notably higher since the beginning of the year and we’re on track to see a 9 to 10% improvement in total sales for 2012.”
Other media have been excited about the improving real estate market as well.
The San Francisco Chronicle summed up recent research, including the growing number of new and existing home sales, the boost in new construction permits, and rising median home prices, to conclude that
“The longest and deepest slide in the housing market since the Great Depression could finally be coming to an end. Based on the new data, many analysts now predict the housing sector will add to economic growth this year for the first time since 2005. That certainly will be a welcome state of affairs,”
The New York Times points out that the positive data was enough to produce gains in real estate investment trusts along with the funds that focus on them.
This is leading many advisers to recommend REITS, saying they provide income when it’s difficult to find, as well as the possibility of growth.
“You’ve got a lot of people who need income, REITs are in good financial shape, and they have a lot of opportunities to pick up buildings on the cheap,” Allan Flader, a financial adviser at RBC Wealth Management in Phoenix, told the Times. “On the other hand they are trading at rich prices. They’re not by any stretch inexpensive by historical standards.”
In keeping with the good news, Jed Kolko, the chief economist at Trulia, penned a column for Bloomberg over the weekend detailing just how much home prices are rising. He points out that — even adjusting for seasonal patterns — all major home price indexes point to an upturn in prices.
Trulia’s asking-price index went up at an annualized rate of 3.3% in the second quarter of 2012, and rose in 84 of the 100 largest metropolitan areas. Trulia said 61% of people surveyed expect prices to continue to rise.
While this is cause for relief, Kolko points out it could be fleating — European economic issues may slow us down. But a tightening inventory could give a boost to home prices, he notes.
The Federal Housing Finance Agency and the Federal Housing Administration are expected to announce guidance in the coming weeks that urges banks to loosen credit standards on government-backed mortgages, the Los Angeles Times reported. Mortgage lenders are adding underwriting requirements and program restrictions to avoid buyback claims, the article said.
Fannie Mae and Freddie Mac accept FICO credit scores of 660 to 680 while private lenders may demand scores 100 points higher. Private institutions, driven by uncertainty and overcorrection, are slowing up the market. “Since the two top agencies are trying to figure how to do this, homebuyers might see slightly less punitive “overlay” fees and underwriting later in the year,” the column said.