The National Association of Realtors recently came out with the Pending Home Sales Index, based on pending sales of existing single-family homes, condos and co-ops. The new Index presents data regarding home sales where the contract has already been signed but the deal has not closed, thus reflecting existing home sales in the coming two months. NAR officials say the new Index provides helpful information in analyzing housing trends.
The new Index captures 20% of home sales on a national scale, although the NAR is planning to increase this sample size going forward. By contrast, the NAR's existing home sales series is based on a 40% sample size. Existing home sales make up 85% of total residential transactions, while new home sales make up 15% of the total. This series, measuring contracts signed the prior month, is based on a considerably smaller 2% sample size.
The Index will serve as a leading indicator of existing home sales. The leading indicator of housing activity had been the new home sales series, characterized by Credit Suisse First Boston analysts as choppy. Meanwhile, the existing home sales index tracks contracts closed the previous month and thus is considered a lagging indicator. The new Index is benchmarked at a 100 base case to approximate the average contract activity in 2001, a year when there was a historically high level of home sales.
According to the Index, January pending homes reached 120.6, showing a 2.1% prior month drop, although higher compared to the 111 year ago level, reflecting a dip in closed existing home sales in the next couple of months. On a regional basis, pending activity in the Northeast rose 3.7% to 105.9 and the West increased by 1.9% to 135.3. Meanwhile, pending home activity dropped 4.5% in the Midwest and 5.6% in the South. Compared to a year ago, pending home sales dropped 1.2% for the Northeast, 21.8% for the West, 2.4% for the Midwest and 8% for the South.
Mortgage researchers said that the new Index is not a major factor in evaluating prepayment risk in MBS, as analysts mostly depend on the Advance Factor Service Title Index as well as the Mortgage Bankers Association Refinance and Purchase indices, which are considered more timely. Meanwhile, long-term prepayments are usually evaluated using statically based proprietary models.
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