The Pending Home Sales Index is a leading indicator of housing activity. It measures housing contract activity and is based on signed real estate contracts for existing single-family homes, condos, and co-ops. When a seller accepts a sales contract on a property, it is recorded into a Multiple Listing Service (MLS) as a “pending home sale.” Most pending home sales become home sale transactions, typically one to two months later.
The Pending Home Sales Index Explained
The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing. Pending contracts are good early indicators of upcoming sales closings. However, the amount of time between pending contracts and completed sales is not identical for all home sales.
Variations in the length of the process from pending contract to closed sale can be caused by issues such as buyer difficulties with obtaining mortgage financing, home inspection problems, or appraisal issues. According to the National Association of REALTORS®, the index is based on a sample that covers about 40% of multiple listing service data each month.
In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months. An index of 100 equals the average level of contract activity during 2001, which was the first year to be examined. By coincidence, the volume of existing home sales in 2001 fell within the range of 5.0 to 5.5 million, which is considered normal for the current U.S. population.
ALSO READ: United States Existing Home Sales Trends
Pending Home Sales: Analyzing the 1.1% Growth in September 2023
Pending home sales witnessed a 1.1% surge in September 2023, as reported by the National Association of REALTORS®. This growth, however slight, brings both positive and concerning trends to the forefront of the real estate landscape.
Key Highlights:
- Pending home sales increased: The overall pending home sales index (PHSI) rose by 1.1% in September compared to the preceding month.
- Regional variations: While the Northeast, Midwest, and South experienced month-over-month gains in contract signings, the West faced a decline.
- Year-over-year challenges: Despite the monthly increase, all four U.S. regions saw a decrease in pending home sales compared to the same period last year.
Insights from NAR Chief Economist:
In response to the modest gain, Lawrence Yun, the NAR chief economist, emphasized that pending contracts remain at historically low levels due to the highest mortgage rates in two decades. Additionally, tight inventory continues to hinder sales while keeping home prices elevated.
PHSI and Market Predictions:
The Pending Home Sales Index (PHSI), a forward-looking indicator, rose to 72.6 in September, reflecting a 1.1% increase. However, year-over-year transactions declined by 11%. NAR’s forecasts for 2023 include a 6.9% average for the 30-year fixed mortgage rate and a decrease to 6.3% in 2024. Existing-home sales are expected to decrease by 17.5% in 2023 before rising by 13.5% in 2024.
Regional Breakdown:
Examining the regional breakdown of pending home sales:
- Northeast: PHSI increased by 0.8% to 63.1, with a year-over-year loss of 12.7%.
- Midwest: The index expanded by 4.1% to 74.3 in September, down 9.2% from the previous year.
- South: PHSI rose by 0.7% to 87.1, retreating 10.7% from the prior year.
- West: The index declined by 1.8% to 55.3, dropping 12.9% from September 2022.
Looking Ahead:
Lawrence Yun envisions a positive shift in sales by early next year, particularly in affordable regions and fast job-creating markets. The Midwest and South are anticipated to lead the recovery, highlighting the importance of increased inventory in revitalizing the overall housing market.
ALSO READ: Will the Housing Market Crash Again?
Pending Home Sales Trends (Previous Months)
The table shows data from regarding pending home sales in four regions of the United States – Northeast, Midwest, South, and West. The data reveals interesting trends in pending home sales across the regions. The National Association of Realtors (NAR) publishes monthly data on pending home sales, which is seasonally adjusted and presented in the form of a seasonally adjusted annual rate (SAAR) in thousands.
Regional Breakdown:
- Northeast: The Pending Home Sales Index (PHSI) for the Northeast increased by 0.8% to 63.1 in September. However, when compared to the same period last year, there was a significant decline of 12.12%.
- Midwest: In the Midwest, the PHSI expanded notably by 4.1%, reaching 74.3. Nevertheless, the year-over-year comparison reveals an 8.04% decrease in pending home sales.
- South: The Southern region experienced a 0.7% rise in PHSI, reaching 87.1. However, this positive change is countered by a substantial year-over-year decline of 10.02%.
- West: The Western region faced a decline in pending home sales, with the PHSI dropping by 1.8% to 55.3. The year-over-year change is marked by an 11.80% decrease.
- Total: The overall PHSI for the nation saw a 1.1% increase, reaching 72.6 in September. Comparing this to the previous year, there was a 10.15% decline in pending home sales.
Here is the tabular data of pending home sales from Sept 2022 to Sept 2023. The units displayed are in thousands and are the seasonally adjusted annual rate.
Source:
- https://www.nar.realtor/research-and-statistics/housing-statistics/pending-home-sales
- https://www.mortgagenewsdaily.com/data/pending-home-sales
