Pending Home Sales Index Up For March

Pending Home Sales Index Up For March

04/29/2013 BY: MARK LIEBERMAN, FIVE STAR INSTITUTE ECONOMIST

The Pending Home Sales Index (PHSI) rose 1.5 percent to 105.7 in March, the highest level in almost three years, the National Association of Realtors (NAR) reported Monday.

Economists had expected a 0.7 percent increase to 105.5 from February’s originally reported 104.8. The February index reading was revised to 104.1.

Last week in a parallel report, the Census Bureau and HUD reported contracts for the sale of new homes increased 1.5 percent to 417,000 in March.

Both the new homes sales and the pending home sales reports measure contract signings and are designed to be forward-looking indicators.

With the month-over-month improvement, the PHSI is 7.0 percent above March 2012, slightly below the 7.7 percent year-over-year gain in February. The index registered double-digit percent gains from April through October last year so the dip— on the eve of the homebuying season—is less than encouraging.

The index has improved month-over-month only twice in the last five months, March and January.

Though designed to be an indicator of future sales -closings, the PHSI does not always line up with the existing-home sales report of completed transactions issued by the NAR.

In March, existing-home sales dropped to 4.92 million from 4.95 million in February even though the PHSI rose in January. Closed transactions rose in both January and February, although the pending sales index dropped in November and December.

NAR chief economist Lawrence Yun continued to blame tight inventories for the slow moving sales pace.

“Contract activity has been in a narrow range in recent months, not from a pause in demand but because of limited supply. Little movement is expected in near-term sales closings, but they should edge up modestly as the year progresses,” he said. “Job additions and rising household wealth will continue to support housing demand.”

While the month-over-month sales pace does not line up with the pending sales index, it does match the movement in the median price of an existing home. In the last 12 months, the median price has dropped five times with sales increasing in four of those months. In the seven months in which prices increased, sales fell three times.

The PHSI in the Northeast remained unchanged at 82.8 in March and sat 6.3 percent above the year-ago level. In the Midwest, the index was up 0.3 percent to 103.8 in March and is 13.7 percent higher from a year ago. In the South, pending home sales increased 2.7 percent to an index of 120.0 in March, 10.4 percent higher than March 2012. In the West the index rose 1.5 percent in March to 102.9, but is 4.3 percent below a year ago.

The PHSI is based on a large national sample, representing about 20 percent of transactions for existing-home sales. An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales; it coincides with a level that is historically healthy.

Hear Mark Lieberman Friday on P.O.T.U.S. radio, Sirius-XM 124, at 8:45 am EST

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