The Pending Home Sales Index, a forward-looking indicator based on signed contracts, increased 6.7% in May 2013 to 112.3 from a downwardly revised 105.2 in April. The May 2013 PHSI reported by the National Association of Realtors (NAR) was 12.1% higher than the same period a year ago. NAR reported that the May PHSI was the highest since late 2006, and that pending home sales have been above their previous year levels for the past 25 months.
The strong increase in the PHSI mirrored Tuesday’s Census report that new home sales increased 2.1% in May. The May PHSI was flat in the Northeast, but increased 10.2%, 2.8% and 16.0% in the Midwest, South and West respectively. Year over year, the PHSI increased 14.3%, 22.2% and 12.3% in the Northeast, Midwest and South respectively, but only 1.1% in the West.
NAR attributed the robust PHSI increase to buyers realizing that mortgage rates have already passed their low point, and that despite a limited inventory, they need to act to take advantage of current rates and prices. This pent-up demand is likely to drive up prices which will induce more homeowners to place their homes on the market 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 June 2013 and July 2013 existing sales data will reflect today’s pending sales report, suggesting continued increases in existing home sales as we move into the summer.