Part I of this two-part series focuses on the definition of a “pending sale” and why pending sales matter.
What Counts as a “Pending Sale?”
Just like it sounds, a “pending sale” represents a home that has gone under contract BUT has not yet closed.
Note that the National Association of REALTORS® (NAR) publishes a “Pending Home Sales Index” (PHSI), a metric that analyzes the entire housing market by taking a sample of some pending sales. NAR states that its sample of some pending sales typically accounts for approximately “20% of transactions for existing-home sales.” NAR’s PHSI does NOT account for sales of newly built homes.
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The PHSI compares current pending home contract activity for existing-home sales to the pending home contract activity for sales happening in 2001. Therefore, when NAR recently reported that the PHSI from March – April 2022 was down -3.9%, NAR means that its latest PHSI was down -3.9% from the PHSI in 2001.
Why Do Pending Sales Matter?
There are reasons that economists look at pending sales rather than simply focusing on closed sales. Take a look:
- Pending sales are essentially hints or “leading indicators” of where the market is going, according to Matthew Gardner, chief economist with Windermere Real Estate.
- Gardner explained that about 80% of pending sales actually close and that those closings happen about 30-60 days in the future.
- Danielle Hale, Chief Economist with Realtor.com, said that pending sales data can highlight and/or foreshadow the impact of disruptive events (such as weather disasters like hurricanes and/or economic disruptors like rising mortgage rates) that may affect the market.
- Redfin’s Fairweather said that homeowners in a seller’s market “…have more power to take an offer that’s going to be really likely for the deal to close…than they would in a buyer’s market.”
- Bottom line: pending sales numbers are sort of like housing market crystal balls – they offer indicators or clues as to where the market is headed, whether or not the seller/buyer has the upper hand and how “outside the market” elements (weather, international conflicts, energy shortages, interest rates, etc.) may impact housing.
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