Pending homes sales gained further ground in August, signaling that the payback period associated with the expiration of the homebuyer tax credit is now behind us. The National Association of Realtors (NAR) release of the Pending Home Sales Index (PHSI) indicated that contracts signed on existing homes gained a further 4.3% in August, following a rise of 4.5% in July.
The upturn in the PHSI was strongest in the South (6.7%) and West (6.2%), while the Midwest (2.1%) had more modest growth. The Northeast (2.9%) experienced a moderate decline.
The NAR pending home sales index (PHSI) is a leading indicator of housing market activity. The PHSI is based on contract signed, while existing home sales are based on closings. The NAR advise that existing home sales typically lag the PHSI by one to two months. The July PHSI marked the turnaround in existing home sales in August, with existing homes sales gaining 7.6%. The gain in the PHSI in August signals further improvement in existing homes sales September.
The NAR state that “The latest data is consistent with a gradual improvement in home sales in the coming months.” But they warned that “The pace of home sales recovery still depends more on job creation and the accompanying rise in consumer confidence.” As we have noted recently, both the Conference Board Consumer Confidence index and the University of Michigan Consumer Sentiment index turned down in September. Despite a modest gain in August, the trend in these indexes has been noticeably downward since the middle of second quarter, due to consumers’ concerns about the slowing economic growth and their future employment prospects. This is likely to act as a drag on the potential rate of growth in pending and existing home sales in the coming months.
With the economy and the employment situation expected to improve in 2011 and 2012, we can expect housing demand to build momentum, with substantial gains in home sales. By the fourth quarter of 2012, the NAHB anticipate that existing home sales will return to pre-recession levels.