Home Buyers Are Getting Off Of The Fence

The National Association of Realtors reported Tuesday that Pending Home Sales ticked higher in December 2008.  A “pending home sale” is a home under contract to sell, sometimes referred to as “in escrow”, but not yet closed.

The group positions Pending Home Sales report as a predictor of future activity, suggesting that home sales will spike 60 days hence.

This is good news for the economy.

However, despite the Pending Home Sales report’s correlation to the actual number of homes sold in the future, that connection may not be the report’s best use. This is because of what Pending Homes Sales doesn’t measure.

Specifically not included in Pending Homes Sales are:

1. Sales of new construction homes
2. Sales of For Sale By Owner properties
3. 80 percent of non-surveyed MLS transactions

And, lastly, it should be noted that Pending Home Sales tracks contracts — not closings — and until a home is sold and closed, nothing has really happened in the economy.  That’s especially relevant in a market like this in which finding financing isn’t always so easy.

Pending Home Sales still has its place, though, because it’s a terrific look at the current buy-side demand for homes. Clearly, low mortgage rates and falling home prices are making an impact and this is why the December’s Pending Home Sales report is so important.  It’s the third housing report this month that shows the demand for homes rising while the supply of homes falls.

The other two reports:

1. The number of “used” homes sold monthly is rising
2. The number of new homes being built are falling

As this relates to Big Bear, we have also seen an uptick in the number of homes going into escrow over the past 2 months. As of Dec. 1 2008, there were 91 pending home sales as compared to 126 on Feb. 2, 2009.

While we are certainly not out of this economic mess, this is some good news for home sellers and for the economy. If housing is expected to lead the U.S. out of recession, the seeds for that recovery may have already been planted.

(Image courtesy: The Wall Street Journal)