Real Estate Market Update – What do the Leading Indicators Say?

We usually start with the Case-Shiller Index, but this month I’d like to start with the three indicators that are most often used by real estate professionals – pending home sales, existing homes sales and housing starts. Let me quickly define each one.

Pending Homes Sales – This is a forward-looking indicator that is based on a signed contract that hasn’t yet closed.

Existing Home Sales – This is considered to be a lagging indicator which shows the number and price of sales (closed transactions) of single-family homes other than new construction. This is published by the National Association of Realtors on a monthly basis.

Housing Starts – This indicator is used in conjunction with building permits and housing completions to indicate where the new home market is headed. This data is compiled jointly by the US Census Bureau and US Department of Housing and Urban Development.

Pending home sales are on an upward trend. According to the Pending Home Sales Index, January 2012 is 8 percent higher than January 2011. This January’s index is the highest since April 2010 when it reached 111.3 as buyers were rushing to take advantage of the homebuyer tax credit. Lawrence Yun, the NAR Chief Economist, says this is a hopeful indicator going into the spring buying season. “Given more favorable housing market conditions, the trend in contract activity implies we are on track for a more meaningful sales gain this year. With a sustained downtrend in unsold inventory, this would bring about a broad price stabilization, or even modest national price growth, of course with local variations.”

“Movement in the index has been uneven, reflecting the headwinds of tight credit, but job gains, high affordability and rising rents are hopefully pushing the market to what appears to be a sustained housing recovery,” Yun says.

Existing Home Sales – increased 4.3 percent to a seasonally adjusted annual rate of 4.57 million in January. Existing Home sales are up 9.2 percent above last year at this time. Yun once again weighs in on the data and says that the strong gains in recent months show buyers are responding to very favorable market conditions. “The uptrend in home sales is in line with all of the underlying fundamentals – pent-up household formation, record-low mortgage interest rates, bargain home prices and sustained job creation and rising rents.”

Housing Starts – Housing Starts are down slightly from December 2011, but way up over every other month in 2011.

Great Fortune,

Diana Hill
dhill@tradingacademy.com