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A real estate trade group reported Tuesday that Pending Home Sales ticked higher in December 2008.  A “pending home sale” is a home under contract to sell, but not yet closed.

The group positions Pending Home Sales report as a predictor of future activity, suggesting that home sales will spike 60 days hence.

This is good news for the economy.

However, despite the Pending Home Sales report’s correlation to the actual number of homes sold in the future, that connection may not be the report’s best use. This is because of what Pending Homes Sales doesn’t measure.

Specifically not included in Pending Homes Sales are:

1. Sales of new construction homes
2. Sales of For Sale By Owner properties
3. 80 percent of non-surveyed MLS transactions

And, lastly, it should be noted that Pending Home Sales tracks contracts — not closings — and until a home is sold and closed, nothing has really happened in the economy.  That’s especially relevant in a market like this in which finding financing isn’t always so easy.

Pending Home Sales still has its place, though, because it’s a terrific look at the current buy-side demand for homes. Clearly, low mortgage rates and falling home prices are making an impact and this is why the December’s Pending Home Sales report is so important.  It’s the third housing report this month that shows the demand for homes rising while the supply of homes falls.

The other two reports:

1. The number of “used” homes sold monthly is rising
2. The number of new homes being built are falling

This is good news for home sellers and for the economy. As the amount of inventory decreases, the existing inventory has greater value to the consumer who is looking to buy, benefitting the people who have already acted and secured their properties. If housing is expected to lead the U.S. out of recession, the seeds for that recovery may have already been planted.

(Image courtesy: The Wall Street Journal)