| September 1, 2005
Pending home sales declined slightly but remain historically high,
according to the National Association of Realtors®.
The Pending Home Sales Index,* based on data collected for July,
slipped 1.0 percent to a reading of 125.1, but is 3.5 percent higher
than July 2004.
The index, a leading indicator for the housing sector, is based on
pending sales of existing homes. A sale is pending when the contract has
been signed but the transaction has not closed; pending home sales
typically close within one or two months of signing.
David Lereah, NAR’s chief economist, said the level of the index is
more important than minor shifts in direction. “The Pending Home Sales
Index is at the fifth highest reading on record, meaning we can expect
historically high home sales to continue in the months ahead,” he
said. “The index has been fluctuating in a fairly narrow range over
the last six months – a very high range – so the overall market is
moving forward with a lot of momentum.”
An index of 100 is equal to the average level of contract activity
during 2001, the first year to be analyzed. Coincidentally, 2001 was the
first of four consecutive record years for existing-home sales. 2001
sales are fairly close to the higher level of home sales expected in the
coming decade relative to the norms experienced in the mid-1990s. As
such, an index of 100 coincides with a historically high level of home
sales activity.
Regionally, the PHSI in the South rose 1.2 percent to record of 139.2
in July and was 8.3 percent higher than July 2004. The index in the West
slipped 1.1 percent to a reading of 127.5, but was 4.7 higher than a
year earlier. In the Midwest, the index declined 3.1 percent to 113.6,
and was 2.5 percent below July 2004. The Northeast index fell 3.7
percent to 109.0 in July, and was 0.8 percent lower than a year ago.
* The Pending Home Sales Index is based on a large national sample,
representing about 20 percent of transactions for existing-home sales.
In developing the model for the index, it was demonstrated that the
level of monthly sales-contract activity from 2001 through 2004 closely
parallels the level of closed existing-home sales in the following two
months.
Existing-home sales for August will be released September 26; the
next Pending Home Sales Index will be on October 5.
Source: The
National Association Of Realtors August 23, 2005
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