The National Association of Realtors’ Pending Home Sales Index (PHSI), a forward-looking indicator of home sales based on contract signings, increased 8.1% to 119.5 in August.
Year over year, signings dipped 8.3%.
“Rising inventory and moderating price conditions are bringing buyers back to the market,” says Lawrence Yun, NAR’s chief economist. “Affordability, however, remains challenging as home price gains are roughly three times wage growth.”
Such an imbalance in the market is unsustainable over the long-term, according to Yun.
“The more moderately priced regions of the South and Midwest are experiencing stronger signing of contracts to buy, which is not surprising,” continues Yun. “This can be attributed to some employees who have the flexibility to work from anywhere, as they choose to reside in more affordable places.”
Realtor.com’s Hottest Housing Markets data revealed that out of the largest 40 metros, the most improved metros over the past year, as of September 27, were Orlando-Kissimmee-Sanford, Fla.; Tampa-St. Petersburg-Clearwater, Fla.; Nashville-Davidson-Murfreesboro-Franklin, Tenn.; Jacksonville, Fla.; and Austin-Round Rock, Texas.
Month-over-month, the Northeast PHSI rose 4.6% to 96.2 in August, a 15.8% drop from a year ago. In the Midwest, the index climbed 10.4% to 115.4 last month, down 5.9% from August 2020.
Pending home sales transactions in the South increased 8.6% to an index of 141.8 in August, down 6.3% from August 2020. The index in the West grew 7.2% in August to 107.0, however still down 9.2% from a year prior.
The PHSI is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.
Pending contracts are good early indicators of upcoming sales closings. However, the amount of time between pending contracts and completed sales are not identical for all home sales. Variations in the length of the process from pending contract to closed sale can be caused by issues such as buyer difficulties with obtaining mortgage financing, home inspection problems, or appraisal issues.
The index is based on a sample that covers about 40% of multiple listing service data each month. 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.
