An index that tracks pending home sales increased 4.3 percent from July to August but sank 14.1 percent compared to August 2005, the National Association of Realtors trade group reported today.
The Pending Home Sales Index, based on contracts signed in August, reached 110.1 in August, compared with 105.6 in July.
The index is based on pending sales of existing homes. A sale is listed as pending when the contract has been signed and the transaction has not closed — the sale usually is finalized within one or 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, the association noted.
“There is a closer relationship between annual changes in the index and actual market performance than with month-to-month comparisons; analysis shows a strong parallel between changes in the index from a year ago and the actual pace of home sales in coming months,” according to the announcement.
Regionally, the index rose 9.2 percent to 112.7 in the West but was 16.9 percent below August 2005. The index in the South increased 4 percent to 126.8 in August but was 9.4 percent below a year ago. In the Northeast, the index rose 3.6 percent in August to 95.4 but was 12.4 percent below August 2005. The index in the Midwest stayed flat at 93.8 in August compared to July and was 20.4 percent lower than a year ago, the association reported.
David Lereah, NAR’s chief economist, said in a statement, “Our sense is that home sales may have reached a low in August — the Pending Home Sales Index shows home sales should be fairly stable over the next two months, although a minor decline is possible. With fewer new listings coming on the market, we should be able to draw down the inventory supply early next year to the point where home prices will rise, but at a slower pace than historic norms.”
The Pending Home Sales Index is based on a large national sample that typically represents 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 parallels the level of closed existing-home sales in the following two months.