Investors in the real estate sector must consider multiple economic indicators before they purchase real estate stocks. Investors in the real estate sector should take into account the pending home sales index, housing market index and new home sales numbers.

The National Association of Realtors developed the pending home sales index, which is a leading indicator of real estate activity. A pending home sale is a contract that has been signed, but the contract is not yet closed; it usually takes around four to six weeks to close a sale. Real estate investors use this economic indicator to gauge the economic momentum and the demand for real estate.

The National Association of Home Builders (NAHB) releases the housing market index data based on a survey in which respondents from the association rate the general economy and housing market or real estate market conditions. This economic indicator is a weighted average of separate indexes, such as present sales of new homes, sales of new homes expected in the next six months and prospective buyers of new homes. Similar to the pending home sales index, investors use this indicator to gauge the demand for housing and economic activity.

Investors in the real estate sector should also focus on new home sales numbers. This economic indicator measures the number of newly built homes with committed sales during the month. Again, this economic indicator provides the demand for real estate. Each time the construction of a new home begins, it indicates more construction jobs are being created. In turn, it pumps the income generated back into the economy. Once a home is sold, it generates revenues for the home builder and the realtor.

By tracking this economic indicator, along with the pending home sales index and housing market index, investors in the real estate sector could gain specific investment ideas on real estate stocks or real estate investment trusts (REITs).

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