February 24, 2010 | Posted in: Real Estate Articles and Information

Interpreting Housing

Economic Indicators – Keep track, because now is a great time to buy!

Analysts, policy makers and investors closely follow economic indicators that track the condition of the housing market. Here’s some background information on these important indicators.

Housing Starts

Housing starts is considered the most important report on the housing sector due to its large ripple effect in the economy when buyers purchase appliances and household furnishings. Construction of single-family homes accounts for about 85% of the industry. Work on multi-family units makes up the rest of the market and is considered highly volatile.

Home Sales

New homes sales account for less than 10% of the market. They are tabulated when the contract is signed. This is different from the way that existing home sales are tallied. They’re counted when the transaction closes and thus reflect contracts signed a month or two earlier. Existing home sales account for more than 80% of the market.

Another important home sales figure is the pending home sales index. This is a leading indicator of existing home sales, not new home sales. A pending sale is one in which a contract was signed, but not yet closed. Because it usually takes four to six weeks to close a contracted sale, it’s considered a leading indicator.

Housing Price Indices

There are two housing price indices: the S&P/Case-Shiller home-price index and the Federal Housing Finance Agency (FHFA) index. The FHFA index is a national measure that tracks houses bought with mortgages purchased by Fannie Mae or Freddie Mac and excludes many of the foreclosure sales and properties bought with non-conventional mortgages. Homes with these loans did not experience the sharp rise and subsequent decline in prices throughout the last decade and represent a more stable pricing index.

In contrast, the S&P/Case-Shiller report is focused on large metropolitan areas and includes distressed properties and those bought with non-conventional loans such as jumbo mortgages. These home prices tend to be much more volatile.