Pending Home Sales: Some Positives

 

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Pending Home Sales Index (PHSI) by the National Association of Realtors® (NAR) reported that contracts signed on existing homes ticked up 5.2 percent in July. This follows a sharp downturn in May (-29.9 percent) and further weakening in June (-2.8 percent) in reaction to the April 30 deadline for signing a contract to qualify for the home buyer tax credit.

July’s upturn was broadly based, with improvement found in all regions. The strongest bounce was in the West (11.6 percent), followed by the Northeast (6.3 percent), Midwest (4.1 percent) and South (1.2 percent).

According to NAR, more than 80 percent of pending home sales are closed within two months of the contract signing. The bulk of the remainder closed within the following two months and only a small proportion cancelled.

Although there is no direct relationship between pending home sales and existing home sales, there is a clear trend. Existing home sales generally lag behind the PHSI by two months, so the sharp July downturn in existing home sales was predicted by the dramatic fall in May of pending home sales index. Likewise, with the June PHSI reading, we can expect August existing home sales (released on Sept. 23) to remain soft.

July PHSI is an early indication that housing demand is beginning to rebuild on the heels of the dramatic drop-off when the home buyer tax credit expired on April 30. Expect a turnaround in existing home sales in September, which is consistent with NAHB’s forecast of weak housing demand in the third quarter, followed by a fourth quarter recovery.

– Courtesy of NAHB