Market Overview

Pending Home Sales Rise More than Expected

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In May, the Pending Home Sales Index hit 101.1, a 5.9 percent rise from 95.5 in April, according to the National Association of Realtors (NAR). This percentage beat economists' expected rise of 1.5 percent. Moreover, May's reading was 13.3 percent above the 89.2 reading from the same month last year.

The index reached 101.1 in March. This was the highest level since April 2010, when home-buyers were "rushing to beat the deadline for the home buyer tax credit," according to NAR.

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

In a statement, NAR chief economist Lawrence Yun provided longer term comparisons. Yun said, “The housing market is clearly superior this year compared with the past four years. The latest increase in home contract signings marks 13 consecutive months of year-over-year gains.”

“Actual closings for existing-home sales have been notably higher since the beginning of the year and we're on track to see a 9 to 10 percent improvement in total sales for 2012,” Yun continued.

Economists expect the national median existing-home price to rise 3.0 percent this year and another 5.7 percent in 2013.

Traders who believe that housing market has bottomed might want to consider the following trades:

  • Long companies like Louisiana-Pacific (NYSE: LPX), who manufacture and distribute products and materials for home construction.
  • Long building companies like Lennar (NYSE: LEN) because more home sales might drive construction demand. This potential increase in construction demand may bolster home builders.
  • Short do-it-yourself stores like Lowes (NYSE: LOW) because if new home sales increase, consumers might be less likely to fix up their existing homes.
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