A new measure of the housing market, reflecting the current level of existing-home sales based on real estate contracts, will be launched next year, the National Association of Realtors announced today at its annual conference and expo.
The Pending Home Sales Index will be released during the first week of each month and will be an accurate predictor for the existing-home sales figures reported for that month, said David Lereah, NAR’s chief economist. The vast majority of pending sales translate into closed sales within one or two months.
“This new index is based on signed real estate contracts, which are pending on transaction closings before they can be counted as sales,” Lereah said. “Modeling for the new index has examined the monthly relationship between existing-home sale contracts and transaction closings over the last three years. The Pending Home Sales Index will provide a more current read of the housing market than any indicator currently available.”
The index will be launched March 7, 2005. Initially, the index will report a projection for national existing-home sales, but regional projections should become available later.
The idea for creating the Pending Home Sales Index first came about more than two years ago in a meeting between NAR and the U.S. Federal Reserve Board. Discussions focused on approaches to get a more current read on actual housing activity, according to NAR.
Existing-home sales account for 85 percent of total residential transactions and are reported around the 25th of each month. EHS is a lagging indicator because it reports transactions that are closed in the prior month. EHS focuses on the seasonally adjusted number of sales, median home prices and housing inventory levels.
There are few housing indicators that are thought to be leading indicators. New-home sales, generally reported shortly after the EHS release, are considered a leading indicator because they are based on contracts signed in the prior month. Mortgage applications are a gauge of future activity, and building permits indicate the level of optimism by home builders. But the statistical relationship between these indicators and existing-home sales is less than satisfying, according to NAR.
“Since the Pending Home Sales Index will be based on a large national sample, about 20 percent, it will be a good predictor for the existing-home sales report that will follow more than a month later,” Lereah said.
The PHSI will be expressed as an index reading, percentage change and projected seasonally-adjusted sales rate.
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