Demand Drives Pending Home Sales to New Record

Sales expected to remain at record level for next two months
NAR: REALTOR® Magazine Online
Pending home sales have risen to a record level, the National Association of Realtors reported today.

The trade group's Pending Home Sales Index, designed to serve as a leading indicator for the housing sector, is derived from pending sales of existing homes. A sale is described as pending when the contract has been signed but the transaction has not been finalized. Pending home sales typically close within one or two months of signing.

Based on contracts signed in August, the index rose 3.2 percent to a reading of 129.5, and is 4.7 percent higher than August 2004. The previous record was 128.1 in October 2004.

A Pending Home Sales Index of 100 is equal to the average level of contract activity during 2001, the first year to be analyzed, and was the first of four consecutive record years for existing-home sales. Sales in 2001 were fairly close to the higher volume of home sales expected in the coming decade, well above the levels that were seen in the mid-1990s, so an index of 100 is considered to be historically strong, according to the association.

David Lereah, NAR's chief economist, said strong demand and favorable market conditions are driving home sales, but the aftermath of Hurricane Katrina is hanging over some of the data. "Home sales remain at remarkable levels, but there is ambiguity regarding pending home sales in parts of the South since many transactions in the disaster zone will be postponed. It's unclear how much of that disruption may be offset by spiking sales in surrounding areas," he said. "Even so, national sales should stay close to record levels over the next two months and housing will continue to support the economy."

Direct data from many hard-hit areas will be unavailable until affected multiple listing services are restored to operation. An estimated 28,000 Realtors lost homes and businesses in Katrina. The Realtors Relief Foundation has collected nearly $4.8 million to provide emergency relief for hurricane victims. Funds are targeted for homeowners and affected NAR members alike.

Regionally, the PHSI in the West rose 7.6 percent to 136.7 in August and was 8.7 percent higher than August 2004. The index in the Midwest increased 2.8 percent to a level of 119.4, and was 0.5 above a year ago. In the South, the index rose 2.2 percent to 142.1, and was 7.6 percent higher than August 2004. The Northeast index declined 0.5 percent to 108.5 in August, and was 2.2 percent lower than a year ago.

The Pending Home Sales Index is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity from 2001 through 2004 closely parallels the level of closed existing-home sales in the following two months, the association reported.