The National Association of Realtors® (NAR) released its February Pending Home Sales Index (PHSI). The index is a leading indicator for the housing sector; it measures sales activity based on sales of single-family homes, coops and condos where contracts have been signed but the transactions have not closed.
According to the data, pending home sales increased in February but with notable regional variations. The national Index rose 2.1 percent to 90.8 in February compared to 88.9 in January. This, however, is a drop of 8.2 percent from the Index figures in February 2010.
Data comes from a large national sample which represents about 20 percent of existing-home sale transactions. The index is derived from a base of 100 representing the average level of contract activity during 2001, the year the index was established. NAR notes that base year coincided with the first of five years of notable health in the real estate industry. The February Index figure indicates that sales contracts were signed at 90.8 percent of the level of that initial year.
In the Northeast Region the PHSI fell 10.9 percent to 65.5 in February and is 18.4 percent below a year ago. In the Midwest the index rose 4.0 percent in February to 81.1 but is 15.9 percent below February 2010. Pending home sales in the South increased 2.7 percent to an index of 100.3 but are 5.3 percent below a year ago. In the West the index rose 7.0 percent to 105.6 and is 0.6 percent higher than February 2010.
The PHSI is a forward indicator of housing sales and it has been demonstrated that it closely parallels the level of existing home sales transactions, 80 percent of which close in the following two months. While most of the remainder is finalized in months three and four, not all pending sales do ultimately close and the percentage of that fallout has been on the rise since early 2009.
NAR's Chief Economist Lawrence Yun said of the February figures, "Month-to-month movements can be instructive, but in this uneven recovery it's important to look at the longer term performance. Pending home sales have trended up very nicely since bottoming out last June, even with periodic monthly declines. Contract activity is now 20 percent above the low point immediately following expiration of the home buyer tax credit."
We may not see notable gains in existing-home sales in the near term, but they're expected to rise 5 to 10 percent this year with the economic recovery, job creation and excellent affordability conditions providing confidence to buyers who've been on the sidelines," Yun said. He also noted that there could have been some weather impact in the February data. "All of the regions saw gains except for the Northeast, where unusually bad winter weather may have curtailed some shopping and contract activity."