The National Association of Realtors (NAR) reported that it’s Pending Home Sales Index (PHSI), a leading indicator of home-buying, accelerated by 5.2% in October to settle at 104.8. An index of 100.0 coincides with a level that is considered historically healthy. October’s monthly increase, which is measured at a seasonally adjusted annual rate, comes on the heels of a 0.4% increase in September. Included in October’s increase was an upward revision of 0.1 point made by the NAR to the September level.
Geographically, the increase in the PHSI reflects gains made in the Midwestern and in the Southern regions of the country. However, these gains were partially offset by slight declines in the Northeast and in the West. Pending home sales in the Midwest grew by 15.6% while the South experienced a 5.5% increase. The 0.1% decline in the Northeast likely reflects the effects of Hurricane Sandy. Meanwhile tight inventory accounted for the 1.1% decrease in the West. Nevertheless, all four regions have seen growth in pending home sales since the previous year.
The recent PHSI release suggests that home sales should accelerate in November and December. Since home sales are considered pending when the contract is signed, but the transaction has not yet closed, then the PHSI is considered a leading indicator of home sales. Home sales typically close one to two months after signing. As the Chart below illustrates, the PHSI tracks existing home sales closely. After reaching a low of 75.9 in June 2010, pending home sales have grown steadily, rising by 38.1% over the period. Existing home sales, which are lagged by two months, grew by 45.2%. The spikes in 2009 and early 2010 likely reflect responses to the federal tax credit.