The number of homes under contract to sell soared in April, climbing nearly 7 percent nationwide versus a month ago.
It’s the third straight month in which the Pending Home Sales Index gained and the biggest monthly jump since October 2001, the month prior to the end of the Early 2000s Recession.
A “pending” home sale is one that’s under contract to close, but has yet to do so.
The Pending Home Sales Index is an imperfect statistic because not every home under contract makes it to closing, but the data can a reliable indicator of home buyer activity.
It’s not tough to understand why homes-under-contract are spiking:
- There’s a $8,000 tax credit for first-time home buyers
- Conforming and FHA mortgage rates are hovering near 5 percent
- Home prices are still soft nationwide
These elements are combining to make homes more affordable than they’ve been in the recent past. Indeed, in April, the Home Affordability Index posted its second highest reading since 1970.
We can’t know if home prices will rise or fall going forward, but if Pending Home Sales translate into closed home sales, values will be pressured to rise. This is because each closed transaction takes a home “off the market”, reducing the supply of available properties.
If demand rises while supplies fall, sellers regain the upper-hand in negotiations and higher prices are the inevitable result.
An estimated 80 percent of all Pending Home Sales close within 2 months.