Pending Home Sales Bounced Back Strongly in October

Pending homes sales bounced back strongly in October, more than recovering the ground lost through declines over the past three months. The National Association of Realtors (NAR) announced a 10.4% increase in the Pending Home Sales Index (PHSI) in October, rising to 93.3.  This follows a decrease of 4.6% in September and modest declines in July (1.2%) and August (1.3%). While the October PHSI represented a sizable month-to-month gain, this essentially returned the index back to the same general level that has been observed since the beginning of 2011.

Across the regions, the PHSI surged 24.1% in the Midwest, jumped 17.7% in the Northeast and rose 8.6% in the South. However, it slipped 0.3% in the West.

Since the PHSI is a forward-looking indicator based on contract signings, the October increase suggests existing home sales are likely to show solid gains over the next few months. However, the NAR advise that, “… although contract signings are up, not all contracts lead to closings.” With the release of the October existing home sales data, the NAR noted that contract cancellations have been rising strongly in recent months, with 33%of NAR members reporting contract failures in October. Contract failures are typically the result of declined mortgage applications or the appraised value of a home coming in below the negotiated price, which typically results in a rejection during the loan underwriting process. Therefore, we can expect existing home sales to increase over the next few months, but the growth may not be as strong as the PHSI suggests.



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