Pending Home Sales Index Surges Past 2018 Numbers

Pending home sales bounced back in November, partially recovering from a 1.7 percent decline in October. The National Association of Realtors® said its Pending Home Sales Index (PHSI), a measure of contracts signed during the month to purchase existing homes, gained 1.2 percent in November to a reading of 108.5 from 106.7.  The index is now up 7.4 percent compared to the November 2018 PHSI.

The month-over month change was slightly higher than the estimate of 1.1 percent from analysts polled by Econoday. Those estimates ranged from 0 to 1.5 percent. The forecast from Trading Economics was precisely on target for the October to November change, but fell far short of the actual year-over-year increase with a prediction of 5.8 percent.

"Despite the insufficient level of inventory, pending home contracts still increased in November," said Lawrence Yun, NAR's chief economist. He noted that housing inventory has been in decline for six straight months dating back to June 2019. "The favorable conditions are expected throughout 2020 as well, but supply is not yet meeting the healthy demand."

"Sale prices continue to rise, but I am hopeful that we will see price appreciation slow in 2020," said Yun. "Builder confidence levels are high, so we just need housing supply to match and more home construction to take place in the coming year."

Three of the nation's regions saw only small variations in month-over-month activity while the West had a significant increase, rising 5.5 percent from October. All four regions improved on their year-ago numbers.

The Northeast PHSI dipped 0.1 percent to 96.3 in November but remained up 2.6 percent compared to the same month in 2018. The index was 1.0 percent higher in the Midwest at 102.5. This was a 5.0 percent year-over-year gain.

Pending home sales in the South decreased 0.2 percent to 125.0, which was still higher than a year earlier by 7.7 percent. The month's large gain put the West's index at 98.4 percent, up 14 percent compared to November 2018.

The PHSI is a leading indicator of existing home sales and is based on a large national sample, typically representing 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 parallels the level of closed existing-home sales in the following two months.

An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined. By coincidence, the volume of existing-home sales in 2001 fell within the range of 5.0 to 5.5 million, which is considered normal for the current U.S. population.