If the Dow winds up closing above 13,000 on Monday, hard as it is to imagine, investors could have the U.S. housing market to thank. The National Association of Realtors reported on Monday that its index of pending home sales hit a level in January last seen in April 2010. Pending sales are seen as an early indicator of home sales. However, it’s not exactly a reliable one because many pending sales never get completed, for a host of reasons.
The NAR report said the pending sales index “rose 2.0 percent to 97.0 in January from a downwardly revised 95.1 in December and is 8.0 percent higher than January 2011 when it was 89.8.” It added that “The January index is the highest since April 2010 when it reached 111.3 as buyers were rushing to take advantage of the home buyer tax credit.”
That report was enough to abruptly halt an opening tumble in the major stock indexes during mid-morning trading. The Dow Jones Industrials were down 100 points before the NAR released it pending home sales index for January, and are floating in the 13,010 range in early afternoon trading.
Most big homebuilders are also getting a lift, with Lennar (NYSE:LEN) up 3% to $23; D.R. Horton (NYSE:DHI) up 2.4% to $14. 30; KB Home (NYSE:KBH) up 1.5% to $11.60; Toll Brothers (NYSE:TOL) up 1.6% to $23; and Hovnanian (NYSE:HOV) up 4.6% to $2.96.
Remember that the pending home sales report is just one of housing’s often-volatile reports. As Ethan Roberts points out today on InvestorPlace in “Are the Real Estate Numbers ‘Real’ Anymore?” investors need to move carefully in this sector due to frequent revisions of numbers. Notes Roberts: “This is a very disturbing trend.”
So, even if the Dow does finally close above its 13,000 milestone again today, keep this warning in mind.