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Pending Home Sales Index eases but historically high

The Pending Home Sales Index, the leading indicator for the housing market, slipped from near-record levels but remains historically high, according to the National Association of Realtors. April and May were the highest months on record for existing-home sales.

The Pending Home Sales Index, based on data collected for May, stands at 124.9, which is 2.0% below April but 3.7% above May 2004. April's downwardly revised reading of 127.5 was second only to a record of 128.1 in October 2004. The index is based on pending sales of existing homes, including single-family and condos; 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 index shows robust home sales were expected for June and July. "Pending home sales are at the third highest on record, so we're looking at a banner year for the housing market," he said. "To put the index in perspective, we're running about 25 percentage points higher than what is considered to be historically strong."

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 West rose 1.6% to 122.7 in May and was 2.8% above the level of a year ago. In the South, the index slipped 1.2% to 137.2, but was 7.9% higher than May 2004. The Northeast index declined 3.3% to a reading of 116.6 in May, but was 4.9% higher than a year earlier. The index in the Midwest fell 5.7% to 115.0 in May, and was 2.9 below a year ago.

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