Housing News

The Case of the Contract-Done Deal Lag

Some data can predict the market, some actually become limited.

The National Association of Realtors releases its Home Sales Index monthly. Last December, the South and the Midwest regions worked their way up despite the lingering drought in the market. April’s seasonally adjusted inched by 6.7 percent to 90.3, far exceeding analysts’ forecasts. The last impressive performance was recorded in October 2001, when pending sales rose 9.2 percent.

The index basically tracks signed contracts to purchase existing homes. Because contracts serve as the bases, the actual deals come in fruition after six to eight weeks. In other words, the index can provide a close approximation of real sales. These sales are considered sold or a sale that has been closed. In contrast, the Pending Home Sales Index is based on a sale that is listed as pending since the contract has been signed but the transaction hasn’t been closed yet.

Such lag has certain implications. First, when the market deals with a very shaky economy, the data won’t be a good measure of the forecasted closed deals. Some buyers may retreat from the transaction within the next two months and it could very well distort the projection. Other factors that can affect include rising mortgage rates, layoffs, difficulty in financing deals with lenders and other things that can pressure buyer confidence away from the market.

Second, those who have immediate needs for actual sales but have to rely on the said data need to always distinguish between deals that have been announced and those that were actually closed. It should be always taken into consideration. When the market has home prices that are taking too long to stabilize and the economy is in shambles, we can only hope that those who signed the contract won’t budge from their positions.

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