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Surprise! Pending Home Sales Surge


The U.S. real estate market has been flexing its muscles in recent weeks.

Unexpected strength in the real estate market this week is the latest sign that U.S. consumers keep charging forward even in the face of high prices and interest rates.

As seen in the chart, the growth of pending home sales in January beat Wall Street predictions by a whopping 7.1 percentage points. The Pending Home Sales index, a leading indicator of home sales based on contract signings, rose 8.1% in January—versus expectations of just 1%.

It’s the index’s largest monthly increase since June 2020 and the biggest surprise since May 2020.

Chart represents month over month (MoM) US Pending Home Sales minus economist estimates from Bloomberg Source: Bloomberg As of: 01/31/2023

This reacceleration among home buyers comes despite 30-year mortgage rates that remain above 7%, up from 3.25% at the start of 2022 (but down from their November peak).

Other encouraging signs in the real estate market include:

● The Dow Jones US Select Homebuilders index—which measures the performance of U.S. home construction companies—is up 10.4% in 2023, versus 3.7% for the S&P 500.

● The Homebuilders index has risen more than 41% since its 52-week low last June.

● The pace of decline in home prices is slowing, with the S&P CoreLogic Case-Shiller 20-City Composite Home Price index falling 0.5% in December (versus a -1.3% decline back in September).*

● With spring arriving soon, we’re about to enter a period of historically heightened real estate market activity.

Given the housing market’s importance to so many sectors of the economy, we will be monitoring the progress of home sales and home prices closely in the coming weeks to see whether recent trends continue.

* seasonally adjusted

This commentary is written by Horizon Investments’ asset management team.

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