This morning’s data on the pending home sales index suggests much more upside ahead for resale activity in the U.S. housing market. The pending home sales index showed a hefty increase of 6.4% in August and is now up for a seventh straight month. The index is back to its March 2007 level, i.e. roughly halfway from the top of the previous economic cycle.
No less than 6.0 million housing units can be expected sold in the near future if the index continues to rise. Inventories of homes in the resale market will certainly fall quickly in the coming months. This development bodes well for construction activity going forward. With only 8 months left of homes supply in the resale market, housing starts will have to pick up sooner than later to meet overall U.S. demand.
Well, it turns out that the housing component of GDP is the best leading indicator for the overall economy. Over the last 60 years, each time that the economy experienced a nice housing rebound, a recovery followed without any relapse in activity. This morning’s data coupled with our call for growth of 25% annual rate in the housing sector in Q3 is certainly a cause for comfort.
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