Pending home sales put in an especially strong performance in June, the second consecutive positive report as well as the fourth in five months.  The National Association of Realtors® (NAR) said its Pending Home Sales Index (PHSI), a forward-looking indicator based on contracts that are signed to purchase existing homes rose 2.8 percent to 108.3 compared to 105.4 in May.  The month-over-month gain that month was 1.1 percent.

In addition, the contract signing performance in June snapped the PHSI's 17-month streak of year-over-year losses. The June reading was up 1.6 percent compared to one year earlier.

The results were significantly higher than expected.  Analysts polled by Econoday had a consensus forecast of a 1.1 percent increase with the highest estimate at 1.5 percent.

Lawrence Yun, NAR chief economist, attributed the 2.8 percent improvement in the indicator to the current favorable conditions and predicted the rise is likely the start of a positive trend for home sales. "Job growth is doing well, the stock market is near an all-time high and home values are consistently increasing. When you combine that with the incredibly low mortgage rates, it is not surprising to now see two straight months of increases," he said.

Yun notes June's contract signings indicate that buyers are both enthusiastic about the market and of the potential wealth gain, but he added that home builders need to increase inventory. "Homes are selling at a breakneck pace, in less than a month, on average, for existing homes and three months for newly constructed homes," he said. "Furthermore, homeowners' equity in real estate has doubled over the past six years to now nearly $16 trillion. But the number of potential buyers exceeds the number of homes available. We need to see sizable growth in inventory, particularly of entry-level homes, to assure wider access to homeownership."

The improvement in pending sales was national.  All four regional indices were higher than in May as well as increasing on a year-over-year basis.  The improvement was especially strong in the West where both home construction and sales numbers had been weak of late. The PHSI in the Northeast rose 2.7 percent to 94.5 in June and is now 0.9 percent higher than a year ago. In the Midwest, the index grew 3.3 percent to 103.6, gaining 1.7 percent on an annual basis.

The index in the South was 125.7 marking 1.3 and 1.4 percent gains over the two earlier periods. The index in the West soared 5.4 percent.  The region's index rose to 96.8 compared to 95.4 one year earlier.   

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.