PHS Index Dips

Information released by the National Association of Realtor’s® shows that pending home sales declined slightly in December but stayed above the year ago levels, and have done so now for 20 straight months.

Though the data is for December it is the most recent data from the NAR in that statistics for January’s Pending Home Sales Index (PHSI) will not be released until February 27th.

The PHSI fell 4.3 percent to 101.7 in December, this was down from 106.3 in November but was still 6.9 percent higher than in December 2011 when it was 95.1. An index of 100 is equal to the average level of contract activity during 2001, which was the first year the NAR formally examined the data.

The Pending Home Sales Index is a forward looking indicator in that it looks at contract signings but not closings, with signings “leading” closings usually by thirty to sixty days, says the NAR.

NAR chief economist, Lawrence Yun, says that Pending Home Sales are in an “uneven uptrend.” He accounts this to a supply limitation that has held back contract signings throughout the month. He goes on by saying; “Still, contract activity has risen for 20 straight months on a year-over-year basis.” Yun also states that buyer interest remains solid in that buyer foot traffic is out pacing seller traffic, as evidenced from data in a separate NAR survey.

Shortages of available inventory are hindering sales in some areas says Yun, and this is making it more difficult for first-time buyers. He further notes that some markets, such as in the West, are already transitioning from a buyer’s to a seller’s market. He says a seasonal rise in inventory should help buyers in the Spring.

Finally, Yun believes that even with a tighter inventory, pent-up demand and favorable home affordability conditions everything bodes well for the market. The NAR expects existing-home sales to increase by 9.0 percent in 2013; this follows an identical 9.0 percent rise in 2012.

Yun said shortages of available inventory are limiting sales in some areas. “Supplies of homes costing less than $100,000 are tight in much of the country, especially in the West, so first-time buyers have fewer options,” he said. “We expect a seasonal rise of inventory in the spring to help, but a seller’s market may be developing. Much of the West is already a seller’s market for homes priced under a million dollars, but conditions are much more balanced in the Northeast.”

Even with tighter inventory, a pent-up demand and favorable affordability conditions bode well for the market. Yun expects existing-home sales to increase another 9 percent in 2013, following a 9 percent rise in 2012.

The PHSI in the Northeast fell 5.4 percent to 78.8 in December but is 8.4 percent higher than December 2011. In the Midwest the index rose 0.9 percent to 104.8 in December and is 14.4 percent above a year ago. Pending home sales in the South declined 4.5 percent to an index of 111.5 in December but are 10.1 percent higher December 2011. In the West the index fell 8.2 percent in December to 101.0 and is 5.3 percent below a year ago.