This last May, Pending Home Sales increased by 44.3%. That is the highest month-over-month gain since the National Association of Realtors (NAR) started tracking this metric in 2001. It turns out those Pending Home Sales play a big role in the historic rebound we are experiencing?
According to NAR, the Pending Home Sales Index (PHS) is:
“A leading indicator of housing activity, measures housing contract activity, and is based on signed real estate contracts for existing single-family homes, condos, and co-ops. 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.”
In real estate, pending home sales is a key indicator in determining the strength of the housing market. As mentioned before, it measures how many existing homes went into contract in a specific month. When a buyer goes through the steps to purchase a home, the final one is the closing, which typically happens within 2 months.
Why is this rebound important?
With the COVID-19 pandemic and a shutdown of the economy, we saw a steep two-month decline in the number of houses that went into contract. In May, however, that number increased dramatically (See graph below): This jump means buyers are back in the market and purchasing homes right now. Lawrence Yun, Chief Economist at NAR mentioned:
“This has been a spectacular recovery for contract signings and goes to show the resiliency of American consumers and their evergreen desire for homeownership…This bounce back also speaks to how the housing sector could lead the way for a broader economic recovery.”
But in order to continue with this trend, we need more houses for sale on the market. Yun continues to say:
“More listings are continuously appearing as the economy reopens, helping with inventory choices…Still, more home construction is needed to counter the persistent underproduction of homes over the past decade.”
The number of homes being built will increase as the year progresses. This will help combat a small portion of the inventory deficit. The lack of overall inventory, however, is still a challenge. It’s creating an opportunity for homeowners who are ready to sell. The graph below shows the supply of homes for sale has been decreasing year-over-year for the last 12 months. It’s just not keeping up with the demand from homebuyers.
If you decided not to sell this spring due to the health crisis, maybe it’s time to jump back into the market while buyers are actively looking for homes. Take advantage of this historic rebound. Let’s connect today to determine your best move forward.