In what could be a sign that things are turning around, pending home sales were up significantly in the latest report from The National Association of Realtors.
NAR’s Pending Home Sales Index (PHSI) is released during the first week of each month. It is designed to be a leading indicator of housing activity.
The 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. Modeling for the PHSI looks at the monthly relationship between existing-home sale contracts and transaction closings over the last four years.
The PHSI released showed that the pending home sales were up by 10.4 percent in October from the previous month and is also up significantly on a year-over-year basis. However it may be too soon to tell if this is going to lead to increased sales. The big question is how many of those pending homes sales are based on financing. Pending home sales will go up but actual closings won’t follow suit as closely as they have in the past. We can’t know all the reasons for this, but NAR surveys of its members have suggested that agents are seeing a lot of closings collapse because buyers can’t get financing.
Another factor contributing to the pending home sales is the fact that rental rates are increasing. Historically, there’s typically been a strong correlation between rising rental rates and rising home prices. That relationship has broken down in the past few years because of the severity of the downturn in the housing market. But with rental rates now well into long-term gains, pressure is mounting for renters to jump to home ownership if only because it’s becoming cheaper to buy than to rent in a lot of markets and at a lot of price points. However, once again the hurdles that on must navigate to get a loan keeps those tenants in check.
In Southwest Florida we are seeing an increased percentage of cash deals in the local market as investors continue to take advantage of the market today. The ability to purchase homes well below market and replacement value has spurred record transactions. Since the majority of homes sold here are cash, the likely hood of those deals staying together increases.