Pending Home Sales Index increased by 44.3% in May, registering the highest month-over-month gain in the index since the National Association of Realtors (NAR) started tracking this metric in January 2001. You might be wondering, what exactly are pending home sales, and why is this recovery so important?
According to NAR, the Pending Home Sales Index (PHS) is:
“A leading indicator of housing activity, measures housing contract activity, and is based on signed real estate contracts for existing single-family homes, condos, and co-ops. Because a home goes under contract a month or two before it is sold, the Pending Home Sales Index generally leads Existing-Home Sales by a month or two.”
In real estate, pending home sales is a key indicator in determining the strength of the housing market. As mentioned before, it measures how many existing homes went into contract in a specific month. When a buyer goes through the steps to purchase a home, before receiving the keys, the final step is closing. On average, that happens about two months after the contract is signed, depending on how fast or slow the process takes in each state. However, with our Apex Approved program, you may be able to close in as little as 15 days! (subject to program availability)
With the COVID-19 pandemic and an almost complete shutdown of the economy for several months now, we saw a steep two-month decline in the number of houses that went into contract. In May, however, that number increased dramatically (See graph below)
This jump means buyers are back in the market and continuing to purchase homes. Lawrence Yun, Chief Economist at NAR mentioned:
“This has been a spectacular recovery for contract signings and goes to show the resiliency of American consumers and their evergreen desire for homeownership…This bounce back also speaks to how the housing sector could lead the way for a broader economic recovery.”
But in order to continue with this trend, we need more houses for sale on the market. Yun continues to say:
“More listings are continuously appearing as the economy reopens, helping with inventory choices…Still, more home construction is needed to counter the persistent underproduction of homes over the past decade.”
As we move through the year, we’ll likely see an increase in the number of houses being built. This will help replenish a small portion of the inventory deficit. The lack of overall inventory, however, is still a major challenge homebuyers face. But on the other hand, it is creating an opportunity for homeowners who are ready to sell. As the graph below shows, during the last 12 months, the supply of homes for sale has been decreasing year-over-year and is not keeping up with the demand from homebuyers.
If you originally decided not to sell this summer due to Coronavirus, maybe it’s time to reconsider and jump back into the market when there is a high demand from buyers. Whether you are looking to buy or sell, let’s connect today to determine what your best move for the future should be.