NAR: Pending Home Sales Down, Some Regions Up

The forward-looking Pending Home Sales Index shows existing-home sales may ease but should stay fairly close to present levels in the months ahead, according to the NATIONAL ASSOCIATION OF REALTORS®.
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The index, based on contracts signed in May, rose in the West and Northeast but fell in the Midwest and South. The national index stood at 97.7 in May, dropping 3.5 percent from a downwardly revised April index of 101.2. That number is 13.3 percent lower than May 2006 when the reading was 112.7. In April, the index was 10.4 percent lower than a year earlier.

The Consumer Confidence Impact

Lawrence Yun, NAR senior economist, says that housing activity continues to be impacted by tighter lending criteria and a lack of buyer confidence. “Some transactions are being postponed from mortgage market disruptions,” he says. “But better supervised lending will put housing in a fundamentally healthier state over the long term."

Mortgage purchase applications are trending up, with some of the rise due to buyers reapplying for alternatives to subprime financing, Yun says. “Nonetheless, home sales should stay close to present levels in the months ahead given an accumulating pent-up demand,” he adds. The pent-up demand results from slow household formation, which is significantly below levels that would be expected in a period of job creation and economic growth.

“As consumer confidence improves, home sales will rise,” Yun says.

Regional Breakdown

Here’s what happened across the United States with the PHSI:

    • West: rose 5.6 percent in May to 95.4 but was 13.7 percent below a year ago.
    • Northeast: increased 3.8 percent from April to 93.1 but is 9.6 percent lower
      than May 2006.
    • South: fell 7.6 percent in May to 107.2 and was 15.4 percent below a year ago.
    • Midwest: dropped 8.9 percent in May to 89.4 and was 11.7 percent below May 2006.

The index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed (sales usually are finalized within one or two months of signing). An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales.