A Historic Rebound for the Real Estate Housing Market
During the month of May, Pending Home Sales increased by 44.3%, making this the highest month-over-month improvement in the index since the National Association of Realtors (NAR) began measuring this metric in January 2001. So, what do we mean when we talk about pending home sales, and why is this rebound so significant? In keeping with 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 the real estate industry, pending home sales is a main signal in determining the fortitude of the housing market. As previously mentioned, it measures the total amount of existing homes that went under contract during a specific month. When a purchaser progresses thru the phases to buy a home, the final phase is the actual closing. Typically, that takes place roughly two months after the purchase contract is executed, depending on how fast or slow the process takes in each state.
Why is this rebound significant?
With the shutdown of the economy and the COVID-19 pandemic, we saw an unduly high two-month decrease in the amount of houses that went under contract. However, in May, that figure rose significantly (See graph below):
This spike in pending sales means buyers have come back to the market and are purchasing homes right now. NAR's Chief Economist was quoted saying,
“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.”
However in order to continue with this trend, we need more houses and condos for sale (inventory) on the market. Yun continues with:
“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 continue on through the rest of 2020, we’ll see a rise in the number of new construction houses being built. This will assist in combating a small portion of the inventory deficit. The shortage of overall inventory, however, is still a challenge, and it is creating an opportunity for homeowners who are ready to sell a home. As the graph below shows, over the last twelve months, the supply of homes and condos for sale has been declining year-over-year and is not keeping pace with the homebuyer demand.
If the Covid pandemic was the reason you decided not to sell this past spring, perhaps now is the time to get back into the market while home-buyers are actively searching for homes. Let’s connect today to discuss the best move forward for you!
The information contained, and the opinions expressed, in this article are not intended to be construed as investment advice. John Sabia, Coldwell Banker and Keeping Current Matters, Inc. does not guarantee or warrant the accuracy or completeness of the information or opinions contained herein. Nothing herein should be construed as investment advice. You should always conduct your own research and due diligence and obtain professional advice before making any investment decision. John Sabia, Coldwell Banker and Keeping Current Matters, Inc. will not be liable for any loss or damage caused by your reliance on the information or opinions contained herein.