The number of homes under contract to sell is rising, another signal that the housing market may be regaining its footing.
As reported by an industry trade group, the Pending Home Sales Index gained 2 percent in February. The report measures MLS-listed homes in “pending” status — sold but not yet closed.
Pending Home Sales is not a perfect statistic, though, by any means.
For one, the Pending Home Sales Index doesn’t account for non-MLS listed homes including For Sale By Owner properties and mass foreclosure auctions. In certain markets nationwide, these two categories represent a large percentage of the overall transaction volume.
Secondly, Pending Home Sales samples just 20 percent of all MLS-based transactions — hardly a complete listing.
But most importantly, a “pending” home sale is not the same as a closed home sale. A lot of things can go wrong between the time a home goes under contract and the supposed closing date. For example, the home inspection could fail, the contract could fall apart, and/or the buyer’s financing could be denied in underwriting.
All things equal, though, Pending Home Sales is a fair forward-looking indicator for the housing market as a measurement of buy-side demand for homes.
When Pending Home Sales rise, it’s tells us that buyers and sellers are matching up, clearing out market inventory. And actual home sales often follow “pending” ones — 80 percent of Pending Home Sales will close within 60 days.
