The monthly US Pending Home Sales Index tracks the number of signed contracts for new residential homes that have not yet been occupied by buyers. This metric is a critical measure of the residential real estate sector and the overall economy.
The Pending Home Sales Index (PHSI) is a leading economic indicator in the United States, released monthly to report the volume of new home purchase contracts signed in prior months but not yet finalized. A higher-than-expected PHSI typically indicates strong growth in the real estate market and strong demand from homebuyers, boosting overall economic confidence. The real estate sector, which is highly sensitive to economic and consumer changes, often reflects broader economic trends.
An increase in the PHSI typically stimulates job growth in real estate-related industries, such as construction and renovation, which contributes to economic expansion. Conversely, a decline in the PHSI may indicate a slowdown in economic and consumer activity, indicating a decline in demand for homes and a potential contraction in the real estate market, with subsequent implications for employment and economic growth.
The US Pending Home Sales Index is released monthly by the National Association of Realtors, an organization that represents and promotes the interests of Realtors, buyers and sellers in the United States.
The impact of the US monthly pending home sales index on Forex trading is significant. This indicator is a key indicator to evaluate the strength of the US dollar in the Forex market. When the monthly release of the Pending Home Sales Index exceeds expectations, it instills greater confidence in the US economy and the dollar. This positive trend reflects the booming real estate market and high demand for housing, which often leads to increased investments in the US economy, thus strengthening the value of the dollar.
Implications of declining home sales pending on the Forex market
The Pending Home Sales Index (PHSI) is a leading indicator of housing market activity in the United States, measuring signed contracts to purchase homes. When the PHSI comes in lower than expected, it indicates weak demand for homes, which can have several implications for the Forex market:
1. Economic Growth Concerns: A lower-than-expected PHSI can signal a slowdown in the housing market, which is often viewed as a leading indicator of broader economic health. Forex traders may interpret this as a sign of potential economic weakness, leading to concerns about overall growth prospects.
2. Impact on interest rates: Weakness in the housing market may prompt central banks, such as the Federal Reserve, to consider maintaining or even lowering interest rates to stimulate economic activity. Lower interest rates can weaken a currency as investors seek higher returns elsewhere. Therefore, forex traders may adjust their expectations of interest rate movements based on PHSI data.
3. Safe haven flows: If lower PHSI data leads to concerns about economic growth, investors may look to safe haven currencies such as the US dollar, Japanese yen or Swiss franc. These currencies tend to strengthen during periods of market uncertainty or economic slowdown, as investors seek to preserve capital.
4. Impact on consumer confidence: Housing market data can also affect consumer confidence, as a slowdown in home sales may dampen consumer sentiment. Low confidence can lead to lower consumer spending, which may affect economic growth and currency values.
In short, a lower than expected PHSI can lead to increased volatility in the forex market as traders reevaluate their expectations for economic growth, interest rates, and risk sentiment.
Pending Home Sales for March: NAR Analysis and Future Trends
In March, pending home sales saw a significant 3.4% rise, according to the National Association of Realtors. Transactions in the Northeast, South and West regions all saw increases, while the Midwest recorded a slight decrease. On an annual basis data showed a decline in the Northeast and South but improvement in the Midwest and West.
The Pending Home Sales Index (PHSI), a leading indicator of future home sales based on contract signings, reached 78.2 in March, registering a slight rise of 0.1% y/y. This index, with a base of 100 and established in 2001, indicates the level of contract activity.
Lawrence Yun, chief economist at NAR, commented on the pending home sales index for March, noting it was the strongest performance in a year. However, he emphasized the need for significant progress, noting that significant gains will only be achieved as mortgage rates decline and inventory increases.
Looking ahead, NAR expects a 9% rise in existing home sales for 2024, to 4.46 million units, followed by another 13.2% increase in 2025 to 5.05 million units. Housing starts are expected to rise by 1.2% in 2024 and 4.9% in 2025, with a total of 1.43 million and 1.5 million units, respectively.
Yoon highlighted the possibility of sales growth in the coming years, attributing this to population increases and changing living conditions, which prompted individuals to search for new housing options. NAR also expects median home prices to rise to record levels in both 2024 and 2025, with modest fluctuations in the median price of new homes expected and an expected increase in the median price of new homes.
Pending Home Sales for April: 7.7% decrease
In April, pending home sales saw a significant decline of 7.7%, according to the National Association of Realtors (NAR). This decline was observed in all four regions of the United States, on a monthly and yearly basis.
The Pending Home Sales Index (PHSI), which serves as a predictive measure of future home sales based on contract signings, fell to 72.3 in April. On an annual basis, pending transactions witnessed a decrease of 7.4%. It is worth noting that the index has been calibrated so that the number 100 represents the level of contract activity in 2001.
Lawrence Yun, chief economist at NAR, attributed this decline to the impact of rising interest rates throughout April, despite higher available inventory. However, he expects the Fed’s expected interest rate cut later in the year to improve conditions, including enhanced affordability and increased supply.
Breaking down the regional breakdown of pending home sales, the PHSI in the Northeast saw a 3.5% decline from the previous month, recording at 62.9, which is 3.1% lower than in April 2023. In the Midwest, there was a notable decline of 9.5% to 70.7 In April, down 8.7% from the previous year.
Likewise, the southern region saw a decline of 7.6% to 88.6 in April, a decrease of 8.2% compared to the previous year. The West index fell 8.5% in April to 55.9, representing a 7.3% decline from April 2023.
While Yoon acknowledged that housing prices have reached record levels, he expects the rate of price increases to slow as housing supply increases. However, he points out that the likelihood of significant declines in housing prices is very small. In markets experiencing price declines, Yoon sees opportunity for buyers, especially in areas that continue to add jobs.
