- Milad Taghehchian, CPA, CFP(R)
Housing Market Strong
The Pending Home Sales Index has reached its highest level since May of 2006. Abbreviated as PHSI, this index was created in 2001 to track the number of contracts out in the market for the sale of existing homes (single-family, condos, and co-ops). It usually takes 1-2 months to complete the sale of a home after a contract is signed – because most homes are sold after this agreement, the PHSI is a pretty accurate indicator of future homes sales, especially in the short-term.
The chart above shows the YOY (year over year) change in the index for the last 12 months. Pending home sales increased 14% compared to April of 2014, indicating a strong increase in these sales contracts. This upward trend shows a rising demand for homes and may indicate our economy has become stronger. Perhaps consumers feel more confident, feeling that they can handle the mortgage payments and myriad of expenses that come with the purchase and maintenance of a home. This conclusion supports most analysts’ assertion that the Fed will soon raise interest rates, as this can often be a sign of a healthy economy. One thing’s for sure: this is a sellers market. This increase in demand means there are more people actively searching for homes to buy, driving home prices upward and often forcing consumers to enter into bidding wars.