March 2014 Pending Home Sales Improves But Still Not Good

The National Association of Realtors (NAR) pending home sales index for March 2014 shows a sizeable improvement over last month.  Unfortunately, the headlines don’t mention that pending home sales index level is down from a year ago, and our analysis suggests that April 2014 existing home sales again may not be good.

• The current trends (using 3 month rolling averages) continues to show a contraction from the rolling averages one year ago in pending home sales (as well as actual existing home sales).
• Extrapolating the unadjusted data to project April 2014 existing home sales, this would be a 10.4% contraction year-over-year existing home sales.
• Pending home sales are based on contract signings, and existing home sales are based on the execution of the contract (contract closing).
• After 28 months of year-over-year growth, pending home sales according to the unadjusted data contracted year-over-year for the sixth month in a row.

The NAR reported March 2014 pending home sales index was up 3.4% month-over-month and down 7.9% year-over-year. The market was expecting month-over-month growth of -1.3% to 2.0% (consensus 0.6%) versus the growth of 3.4% reported.Econintersect‘s evaluation shows the index growth accelerated 2.6% month-over-month and down 7.4% year-over-year.

Unadjusted 3 Month Rolling Average of Year-over-Year Growth for Pending Home Sales (blue line) and Existing Home Sales (red line)

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From Lawrence Yun , NAR chief economist:

After a dismal winter, more buyers got an opportunity to look at homes last month and are beginning to make contract offers. Sales activity is expected to steadily pick up as more inventory reaches the market, and from ongoing job creation in the economy.

The National Association of Realtors (NAR) pending home sales index offers a window into predicting existing home sales. The actual home sale might appear in the month the contract was signed (cash buyers account for 33% of home sales in March according to the NAR – cash buyers can close quickly), or in the following two months.