The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. The Pending Home Sales Index, rose 6.3% to 87.7 in December from an upwardly revised reading of 82.5 in November, and is 2.1% higher than December 2007 when it was 85.9.
The improvement in the index is spurred by buyers responding to lower home prices and lower mortgage interest rates. According to the NAR, “The biggest gains were in areas with the biggest improvements in affordability.” While the housing market is still facing significant issues, on the margin, this is good news for our “MEGA” investment thesis on the US Consumer. The US Consumer Discretionary sector etf (XLY) is leading the market higher today, trading +1.5%, partly as a function of this data point.
At the center of the housing crisis is the decline in home values and the consumer’s ability to stay in his or her home. In the coming weeks, we will hear from President Obama that he is seeking to stem the record surge of foreclosures (the biggest contributor to the decline in home prices) by using government guarantees for modified home loans.
The US housing market is still extremely challenging, but significantly lower prices, lower interest rates and government guarantees will help put a bottom in the US housing crisis. Remember, everything that matters in our macro models occurs on the margin – going from toxic to bad, in this case, is good.
Howard W. Penney