Pending Home Sales Bounce Back in December

This morning the National Association of Realtors released the December data for their Pending Home Sales Index. Here is an excerpt from the latest press release:

Lawrence Yun, NAR chief economist, says contract activity was mixed throughout the country in December but ultimately ended on a high note to close out 2016. "Pending sales rebounded last month as enough buyers fended off rising mortgage rates and alarmingly low inventory levels1 to sign a contract," he said. "The main storyline in the early months of 2017 will be if supply can meaningfully increase to keep price growth at a moderate enough level for households to absorb higher borrowing costs. Sales will struggle to build on last year's strong pace if inventory conditions don't improve." (more here).

The chart below gives us a snapshot of the index since 2001. The MoM change came in at 1.6%. Investing.com had a forecast of 1.1%.

Pending Home Sales

Over this time frame, the US population has grown by 14.3%. For a better look at the underlying trend, here is an overlay with the nominal index and the population-adjusted variant. The focus is pending home sales growth since 2001.

Pending Home Sales Growth

The index for the most recent month is 14% below its all-time high in 2005. The population-adjusted index is 22% off its 2005 high.

Pending versus Existing Home Sales

The NAR explains that "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." Here is a growth overlay of the two series. The general correlation, as expected, is close. And a close look at the numbers supports the NAR's assessment that their pending sales series is a leading index.

Pending Home Sales Growth