Pending Home Sales Drag In January, But Should Rebound For Spring

Fewer homes went under contract in January as the housing market continues to limp through the winter months.

According to the National Association of Realtors®, the Pending Home Sales Index fell to its lowest level in 3 quarters this January. By contrast, in October 2009, the index had touched a 3-year high.

The Pending Home Sales Index measures the number of homes that have gone under contract to sell, but have yet to close nationwide. It’s compiled using data from more than 100 regional listing services and 60-plus brokerages  — the sample set encompasses 20 percent of all home resales in a given month.

Economists have come to rely on the Pending Home Sales Index because of its high correlation to actual home sales. 80% of all home marked “pending” close within 60 days. Many of the rest close within 120.

Therefore, when we see Pending Home Sales show weakness like it did in January, we can infer that home resales will remain weak through the spring.

But will they really?

1. Fewer sales should drag down home prices, bringing more buyers into the market
2. Mortgage rates are still very low, but are poised to rise in just a few weeks
3. The home buyer tax credit requires buyers to be in contract by April 30, 2010

Based upon the activity in our offices during the month of February, even with the record breaking snowfall, our offices saw substantial activity, outpacing our company’s January activity.Since the snow had to act as a slowing factor on the actual local demand for housing, there would seem to be additional pressure driving the market now that the weather has become more moderate. In other words, there’s a confluence of factors that could lead to a rush of sales in Philadelphia and around the country over the next two months, reversing the housing market’s recent momentum.