For the second consecutive month, the number of homes under contract to sell increased — further evidence that housing markets may have already bottomed.
As reported by an industry trade association, the Pending Home Sales Index rose by 3-plus percent last month.
A “pending” home is one that’s under contract but has yet to close. This is one reason why the Pending Home Sales Index is an imperfect statistic.
Just because a home is under contract doesn’t mean it will actually sell. A lot can go wrong between the date of agreement and the date of closing. Deals fall apart all the time. But, when the number of pending contracts rises, we can infer that buy-side demand for homes is strong.
It’s likely that the number of homes under contract is being influenced by a combination of low mortgage rates, relatively inexpensive homes, and various tax credits for certain homebuyers. Overall, it’s spurring demand and that’s part of what’s captured by the Pending Home Sales Index.
So long as the demand for homes outpaces its supply, home prices are expected to rise.