Market Overview

Pending Home Sales Rise More than Expected

The Pending Home Sales index measures housing contract activity. It is based on signed real estate contracts for existing single-family homes, condos and co-ops.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, rose 4.1 percent to 101.4 in March from an upwardly revised 97.4 in February and is 12.8 percent above March 2011 when it was 89.9, according to the National Association of Realtors. This was better than the 1 percent increase analysts were expecting.

Lawrence Yun, NAR chief economist, said 2012 is expected to be a year of recovery for housing. “First quarter sales closings were the highest first quarter sales in five years. The latest contract signing activity suggests the second quarter will be equally good,” he said.

“The housing market has clearly turned the corner. Rising sales are bringing down inventory and creating much more balanced conditions around the county, which means home prices will be rising in more areas as the year progresses,” Yun said.

An increase in pending home sales implies a healthy housing market. According to the multiplier effect, housing has an impact on the rest of the economy. Increases in homes sold suggest increased household income and in turn an economic expansion, and visa versa.


ACTION ITEMS:

Bullish:
Traders who believe that a beat in Pending Home Sales is positive for the economy, you might want to consider the following trades:
  • If numbers come in better than expected, long building companies like PulteGroup (NYSE: PHM).
  • Also, long companies like Louisiana-Pacific (NYSE: LPX), who manufacture and distribute products and materials for home construction.
Bearish:
Traders who do not believe that the Survey is a leading indicator for the general housing market, you may consider alternative positions:
  • If the number comes in better than expected, take advantage of strength and short building companies like DR Horton (NYSE: DHI).
  • Also, short do-it-yourself stores like Lowes (NYSE: LOW) or Home Depot (NYSE: HD) because if home sales increases, it mean consumers are not likely to fix-up their existing house.
Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

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