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 Elevated 0.9% in July, Marking the Second Consecutive Monthly Increase
- Pending home sales improved in July, up 0.9% from June.
- Month over month, contract signings increased in the South and West but decreased in the Northeast and Midwest.
- Pending home sales fell in all four U.S. regions compared to one year ago.
Pending home sales increased 0.9% in July – rising for the second consecutive month – according to the National Association of REALTORS®. The Northeast and Midwest posted monthly losses, while sales in the South and West grew. All four U.S. regions saw year-over-year declines in transactions. The Pending Home Sales Index (PHSI)* – a forward-looking indicator of home sales based on contract signings – rose 0.9% to 77.6 in July. Year over year, pending transactions fell by 14.0%. An index of 100 equals the level of contract activity in 2001.
The Market Analysis
The small gain in contract signings shows the potential for further increases in light of the fact that many people have lost out on multiple home-buying offers,” said NAR Chief Economist Lawrence Yun. “Jobs are being added and, thereby, enlarging the pool of prospective home buyers. However, rising mortgage rates and limited inventory have temporarily hindered the possibility of buying for many.”
Pending Home Sales Regional Breakdown
The Northeast PHSI shrank 5.8% from last month to 63.2, a decrease of 20.2% from July 2022. The Midwest index fell 0.4% to 77.5 in July, down 16.0% from one year ago. The South PHSI lifted 2.0% to 95.3% in July, declining 10.9% from the prior year. The West index improved 6.2% in July to 61.3, dropping 12.8% from July 2022.
“Interestingly, the West region experienced a meaningful price decline in the past year and buyers are quickly returning as a result,” Yun added.
Implications for Existing Home Sales
Pending home sales often serve as a leading indicator for existing home sales, typically by one to two months. This rise in signed contracts aligns with the trend observed in new home sales during July. However, Danielle Hale, the chief economist for Realtor.com, noted that pending home sales are still lagging behind levels seen in the previous year. Existing home sales have only shown modest growth, which is partially attributed to persistently low housing inventory.
The Inventory Challenge
The shortage of available housing inventory remains a significant barrier to increased home sales across the nation. Many homeowners benefiting from historically low mortgage rates are hesitant to sell their homes and purchase new ones at higher rates. This dynamic has created an opportunity for new construction homes to supplement the limited inventory.
While the recent data highlights the resilience of the real estate market, challenges such as limited housing options and affordability concerns are likely to continue impacting home sales in the coming months. The modest bounceback in existing home sales suggests that the market's recovery is still ongoing.
In summary, the July pending home sales data indicates a 0.9% increase in contract signings, marking the second consecutive monthly rise. While the Northeast and Midwest faced losses, the South and West regions experienced growth. The real estate market continues to show resilience despite challenges posed by rising mortgage rates and limited inventory. The National Association of REALTORS® remains committed to providing valuable insights and indicators for the housing sector.
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.
June 2023 Figures
The data for June 2023 provides a snapshot of pending home sales in the various regions. In the Northeast, pending home sales stood at 67.1. Meanwhile, the Midwest saw a higher figure of 77.6, and the South recorded even stronger numbers at 93.3. The West region lagged behind with pending home sales at 57.7. In total, the overall pending home sales index rested at 76.8.
The month-over-month changes offer insights into the short-term shifts in pending home sales. The Northeast experienced a modest increase of 0.60%. On the other hand, the Midwest region saw a more substantial rise of 4.30%. However, both the South and West regions faced declines, with -1.17% and -1.20% respectively. Across all regions, the total change in pending home sales was 0.39%.
Comparing the pending home sales data from June 2023 with the same period of the previous year unveils the broader trend. The Northeast and Midwest both exhibited similar year-over-year drops, with -17.06% and -17.18% respectively. The South region experienced a somewhat milder decline of -13.85%. The West, while still affected, displayed a year-over-year change of -16.01%. When combining data from all regions, the total year-over-year change in pending home sales was -15.60%.
Here is the tabular data of pending home sales from June 2022 to June 2023. The units displayed are in thousands and are the seasonally adjusted annual rate.