An index that gauges pending sales of existing homes was down 16 percent in July compared to July 2005 and fell 7 percent from its level in June 2006, the National Association of Realtors reported today.
The Pending Home Sales 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, and pending sales typically are finalized within one to two months 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.
Regionally, the index in the West declined 5.5 percent in July to 103.1 and was 20.3 percent below July 2005. The index in the South dropped 6.4 percent to 122.3 in July and was 11.3 percent below a year ago. In the Northeast, the index fell 7.7 percent in July to 92.1 and was 15.5 percent below July 2005. The index in the Midwest dropped 9 percent to 93.3 in July and was 20.1 percent lower than a year ago, the association reported.
David Lereah, NAR’s chief economist, said in a statement, “Based on recent changes from a year ago, the index shows existing-home sales should continue to ease after a stronger-than-expected decline in July, but are likely to flatten in the months ahead.”
Lereah attributed a large part of the decline in July home sales to “psychological factors,” according to the association announcement.
“We’ve never seen a general decline in the housing market against a healthy economic backdrop where jobs are being created, the economy in growing and interest rates are favorable. Psychological factors are causing some buyers to remain on the sidelines, waiting for prices to stabilize or for more favorable news about the market and the economy. Contributing to this hesitancy is a lot of negative news stories, but in the end we believe that underlying market fundamentals will prevail,” he stated.
The Pending Home Sales Index is based on a national sample that typically represents about 20 percent of transactions for existing-home sales. In developing the model for the index, the association demonstrated that the level of monthly sales-contract activity from 2001-04 parallels the level of closed existing-home sales in the following two months.