If youâ€™re waiting for home prices to reach its bottom, you may have missed your window.
After 3 consecutive months of easing, the Pending Home Sales IndexÂ jumped 10 percent in October, lending credence to the belief that housing is in recovery.
The Pending Home Sales Index is a monthly publication from the National Association of REALTORSÂ®. It measures the number of homes under contract to sell nationwide.Â Octoberâ€™s reading is the highest for all of 2011, and the second-highest dating back to April 2010.
April 2010 was the last month of the last yearâ€™s federal home buyer tax credit.
For buyers and sellers in Chicago and nationwide, the Pending Home Sales Index is a housing metric worth watching. Different from the Existing Home Sales and New Home Sales reports which report on â€œthe pastâ€, the Pending Home Sales Index is a forward-looking housing market indicator.
According to the National Association of REALTORSÂ®, 80% of homes under contractÂ close within 2 months.
The majority of the restÂ close within Months 3 and 4.
The spike in Octoberâ€™s Pending Home Sales Index, therefore, foretells a strong Existing Home Sales report for November and December. Not that we should be surprised!Â Home builders have been telling us for weeks thatÂ the market is strengthening,Â and that home supplies areÂ at multi-year lows.
The only wild-card is the marketâ€™s out-sized contract failure rate. One in three pending home sales failed to close in October â€” nearly double the rate of the month prior and 4 times the rate of October 2010. Should this high failure rate continue, the Pending Home Sales Indexâ€™s role as a forward-looking indicator would be muted.
Overall, though, new buyer demand for housing accompanied a smaller home supply will result in higher home prices through 2012. And, with mortgage rates expected to rise, monthly carrying costs will be higher, too.
Looking at the data, the best time to buy a home may be right now.