Reports out today indicated that pending home sales of existing homes were up in August and higher than the consensus analyst estimates. The National Association of Realtors reported that signed contracts increased by 4.3%. Economists average expectations were closer to 2.5%, making the actual results a pleasant surprise. Following an increase in July of 4.5%, the current report suggests that the housing market may be stabilizing and that the worst of it is behind us.
Pending home sales are an important leading indicator. The report measures homes that are under contract, but have not closed their deals, which normally take four to six weeks to complete. When pending sales rise, it is generally an indication that the next report of actual sales will also be positive, though not always. More importantly, pending home sales provide a glimpse at consumer confidence and provide a ripple effect through the economy. Although the ripple is not as large as new home sales, existing home sales still provide revenues and income to a variety of service providers in the transaction, including the realtors, lenders, title companies, and homeowner’s insurance providers. The new buyer also has the potential to purchase related goods for their residence, including appliances, furniture, decorations, and landscaping. Overall, positive news in pending home sales can only be seen as a positive for the economy.