The Pending Home Sales Index, a forward-looking indicator based on signed contracts, decreased 0.4% in February 2013 to 104.8 from a downwardly revised 105.2 in January. The February 2013 PHSI reported by the National Association of Realtors (NAR) was 8.4% higher than the same period a year ago. The last time the PHSI was higher was in April 2010 when the home buyer tax credit was expiring.
The slippage in the PHSI is consistent with yesterday’s 4.6% decline in new home sales. Mirroring yesterday’s new home sales report, the PHSI was strongest in the Midwest, increasing 0.4% from the previous month, and 13.2% from the same period a year ago. In the West, the PHSI increased by 0.1% from January, and was down 0.8% from a year ago. In the South, the PHSI decreased 0.3% in February, but is up 12.1% from the same month a year ago.
NAR attributed the PHSI decline to limited inventory, and suggested that small-sized builders who could add supply were constricted by the regulatory environment surrounding construction loans for smaller community banks and credit unions. However, if a limited inventory is holding back the market today, rising prices will also induce more homeowners to place their homes on the market and relieve that pressure and broaden choices for potential home buyers.
If contracts closed at the same time they were signed, this graph would be the correspondence between sales and the PHSI. So the PHSI is a good indicator of what will likely happen to existing home sales when the contracts close in coming months. We anticipate that the March 2013 and April 2013 existing sales data will reflect today’s pending sales report, suggesting moderation in existing home sales as we move through the spring.