Pending Sales Index Shows Housing Market Slowing

NAR: REALTOR® Magazine Online
Pending home sales, a leading indicator for the housing sector, slowed for the third consecutive month in November, demonstrating that a market transition is firmly in place, according to the NATIONAL ASSOCIATION OF REALTORS®.

NAR's Pending Home Sales Index, based on contracts signed in November, slipped 2.5 percent to a reading of 120.6 from 123.7 in October, and is 2.5 percent lower than November 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 remains at a historically high level.

“Although pending home sales are trending down from a record in August, the index remains well above a mark that is considered to be historically strong,” he says.

An index of 100 is equal to the average level of contract activity during 2001, the first year to be examined, and was the first of five consecutive record years for existing-home sales.

“We are clearly experiencing a market transition, moving from a prolonged boom to a more balanced period of sustainable sales,” Lereah says. “In other words, home sales have been peaking for the last five years and we will land on a high plateau in 2006—a market that will be healthy for both buyers and sellers. Investment fundamentals for housing remain solid, preserving generally favorable affordability conditions while offering solid returns as well as a place to live.”

Regionally, the Pending Home Sales Index in the Midwest rose 3.4 percent in November to 116.0 but was 3.7 percent lower than November 2004. In the South, the index declined 1.9 percent to 132.8 in November but was 1.8 percent above a year ago. The index in the West fell 5.1 percent to 127.7 in November, and was 4.6 percent lower than a year ago. The index in the Northeast was down 8.3 percent to a level of 93.3, and was 8.0 below November 2004.