Pending home sales dip annually for 14th straight month

Despite slower than last year pending sales, NAR's chief economist thinks the market is past the cycle of low sales

The pending home sale index (PHSI), a forward-looking indicator based on contract signings, dropped 1 percent from January to February to 101.9 and was down 4.9 percent year-over-year, according to the latest data from the National Association of Realtors (NAR).

The year-over-year decrease marks the 14th straight month of annual declines.

Despite the dip, last month’s 5 percent month-over-month uptick makes this month’s slight decline less concerning, according to Lawrence Yun, the chief economist at NAR.

“In January, pending contracts were up close to 5 percent, so this month’s 1 percent drop is not a significant concern,” Yun said. “As a whole, these numbers indicate that a cyclical low in sales is in the past but activity is not matching the frenzied pace of last spring.”

Regionally, the PHSI in the northeast dropped 0.8 percent month-over-month and 2.6 percent year-over-year to a level of 92.1. In the Midwest, the index dropped 7.2 percent month-over-month and 6.1 percent year-over-year to 93.2. The PHSI rose 1.7 percent month-over-month to 121.8 in the South, but was down 2.9 percent year-over-year.

The lowest region for pending home sales was the West, which rose slightly by 0.5 percent month-over-month to 87.5, but was still down 9.6 percent below last year’s level.

“There is a lack of inventory in the West and prices have risen too fast,” Yun said. “Job creation in the West is solid, but there is still a desperate need for more home construction.”

The PHI is an index based on pending sales of existing homes. The index is based on a large national sample, according to NAR, typically representing about 20 percent of transactions for existing home sales.

For the purpose of the index, a score of 100 is equal to the average level of contract activity during 2001, the first year NAR began compiling home sales. Existing home sales fell within a range of 5 million to 5.5 million that year, which is considered normal for the current U.S. population.

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