Pending Home Sales Index Close to Record

NAR: REALTOR® Magazine Online
Pending home sales, a leading indicator for the housing sector, eased slightly but is at the second-highest level on record, according to the NATIONAL ASSOCIATION OF REALTORS®.

The Pending Home Sales Index, based on contracts signed in September, slipped 0.3 percent to a reading of 128.8 from a record of 129.2 in August, and is 3.3 percent higher than September 2004.

The index is derived from pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed; pending home sales typically are finalized within one or two months of signing.

David Lereah, NAR’s chief economist, says the index shows a lot of momentum. “We’re still seeing a post-Hurricane Katrina boost in home sales activity, where the needs of displaced residents are supplementing a fundamentally strong market,” he says. “Aside from this temporary lift, the market is entering a period of transition in which we will see a somewhat slower but more sustainable pace of home sales—a period that is expected to be historically healthy. This will help to create a better balance between home buyer and sellers, so price appreciation should be cooler as well.”

Many post-Hurricane Katrina sales in the region surrounding the disaster zone were bulk sales by companies that were obtaining housing for employees; some of those sales closed quickly in September with others expected to be recorded in data for October and November.

An index of 100 is equal to the average level of contract activity during 2001, the first year to be examined. 2001 was the first of four consecutive record years for existing-home sales, with activity in that year being fairly close to the higher level of home sales projected for the coming decade relative to norms during the mid-1990s. A Pending Home Sales Index of 100 coincides with a historically high level of home sales.

Regionally, the highest PHSI was in the South, where the index slipped 1.6 percent in September to 139.1 from a record in August, and was 6.3 percent higher than September 2004. In the Northeast, the index rose 1.8 percent to 110.4 in September and was 0.8 percent above a year ago. The Midwest index rose 0.3 percent to 119.7 in September, and was 0.4 percent below September 2004. The index in the West held even at a level of 136.7, and was 3.6 higher than a year ago.