Pending Home Sales Index Eases

Economist: market has been encouraged by rising home sales over the last two months

RISMEDIA, May 3, 2006—Pending home sales have slowed modestly as interest rates continue to rise, according to the National Association of Realtors®.

The Pending Home Sales Index,* based on contracts signed in March, eased 1.2 percent to a level of 116.2 from an index of 117.6 in February, and is 6.0 percent below March 2005.

The index is derived from pending sales of existing homes. A sale is listed as pending when the contract has been signed and the transaction has not closed; pending sales typically are finalized within a month or two of signing.

An index of 100 is equal to the average level of contract activity during 2001, the first year to be examined, and was the first of five consecutive record years for existing-home sales.

David Lereah, NAR’s chief economist, said the market has been encouraged by rising home sales over the last two months. “Home sales rebounded from the slide that started last fall, but the pending sales data is showing a dampening effect from rising mortgage interest rates that have been trending up since January,” he said. “This means a modest slowing can be expected in the sales pace in the months ahead, although the market will hold at historically strong levels.”

Regionally, the PHSI in the Northeast rose 5.2 percent in March to 112.9 but was 1.1 percent below March 2005. In the West, the index increased 0.7 percent in March to 111.0 but was 13.3 percent below a year ago. The index in the South eased 1.2 percent to 127.9 in March and was 1.6 percent lower than March 2005. The index in the Midwest fell 7.4 percent to 106.1 in March and was 9.3 percent below a year ago.

* The Pending Home Sales Index is based on a large national sample, typically 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 April will be released May 25; the next Pending Home Sales Index will be on June 1.