National data shows steady home sales will continue

Pending Home Sales Show Steady Trend
CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.)
The decline in pending home sales from year ago levels continues to narrow, a sign that market stabilization will continue in the months ahead, according to a recent report from NAR. The Association's Pending Home Sales Index (PHSI), which gauges home sales activity for upcoming months based on the number of transactions that have signed contracts but are not yet closed, stood at 107.0 in November. A PHSI of 100 or more generally indicates a high level of home sales activity. Over the last five months, year-to-year declines in the PHSI have gradually fallen from 16 percent in July to 11.4 percent in November.

"Because there is a stronger parallel between changes in the index from a year ago and the actual pace of home sales in coming months, the index is pointing toward fairly stable home sales in the near future," said NAR Chief Economist David Lereah. "That is another indicator that home sales likely bottomed-out in September."

The PHSI declined across the nation in November compared with the readings a year ago. On a regional basis, the PHSI was highest in the South, where it declined 8.9 percent to 121.6. In the West, the index fell 15.9 percent to 106.6. The PHSI also declined in the Midwest and Northeast regions, falling to 101.7 and 85.5, respectively.

A stabilization trend in the housing market is likely to continue, according to the latest reading on pending home sales published by the National Association of Realtors®.

The Pending Home Sales Index,* based on contracts signed in November, eased by 0.5 percent to 107.0 from an upwardly revised reading of 107.5 in October, and is 11.4 percent lower than November 2005. The decline from year-ago levels has been steadily narrowing since July, which was 16.0 percent lower than the same month in 2005.

David Lereah, NAR’s chief economist, said the narrowing from year-ago levels is a significant factor. “Because there is a stronger parallel between changes in the index from a year ago and the actual pace of home sales in coming months, the index is pointing toward fairly stable home sales in the near future,” he said. “That is another indicator that home sales likely bottomed-out in September.”

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

An index of 100 is equal to the average level of contract activity during 2001, the first year to be examined and the first of five consecutive record years for existing-home sales. There is a closer relationship between annual changes in the index and actual market performance than with month-to-month comparisons.

“Although some monthly declines are possible, when we look at the forecast for existing-home sales in 2007 on a quarterly basis, we see gradual improvement over the course of the year,” Lereah said. “That will support future price appreciation as inventories are drawn down.”

Regionally, the PHSI in the Midwest rose 4.8 percent in November to 101.7 but was 11.6 percent below a year ago. The index in the South slipped 1.1 percent to 121.6 and was 8.9 percent below November 2005. The index in the West declined 2.6 percent to 106.6 and was 15.9 percent lower than a year earlier. In the Northeast, the index was down 2.8 percent in November to 85.5 and was 9.6 percent below November 2005.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing more than 1.3 million members involved in all aspects of the residential and commercial real estate industries.


* 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 parallels the level of closed existing-home sales in the following two months. There is a closer parallel between annual index changes (from the same month a year earlier) and year-ago changes in sales performance than there is with month-to-month comparisons.

The forecast will be revised January 10, and existing-home sales for December will be released January 25. The next Pending Home Sale for December will be released January 25. The next Pending Home Sales Index will be on February 1.