Economy: Pending Home Sales Index for July 2021

The Pending Home Sales Index (PHSI) report for July 2021 was released by The National Association of Realtors® (NAR) this morning:

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Predicted: Unchanged.

Actual: 110.7

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-- Previous Month (revised): 112.7

-- 12 Months Previous: 121.0

Change from Previous Month: -1.775% (-2.0 points)
Change from One Year Previous: -8.512% (-10.3 points)

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From the NAR website:

An index above 100 coincides with a historically high level of home sales activity.

An index of 100 is equal to the average level of contract activity during 2001, the first year to be analyzed. Coincidentally, 2001 was the first of four consecutive record years for existing-home sales. 2001 sales are fairly close to the higher level of home sales expected in the coming decade relative to the norms experienced in the mid-1990s. As such, an index of 100 coincides with a historically high level of home sales activity.

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From Today's Report:

"...Pending home sales dipped modestly in July, noting two consecutive months of declines, according to the National Association of Realtors®. Only the West region registered a month-over-month gain in contract activity, while the other three major U.S. regions reported drops. All four regions saw transactions decrease year-over-year.

The Pending Home Sales Index (PHSI), www.nar.realtor/pending-home-sales, a forward-looking indicator of home sales based on contract signings, declined 1.8% to 110.7 in July. Year-over-year, signings fell 8.5%. An index of 100 is equal to the level of contract activity in 2001.

'The market may be starting to cool slightly, but at the moment there is not enough supply to match the demand from would-be buyers,' said Lawrence Yun, NAR's chief economist. 'That said, inventory is slowly increasing and home shoppers should begin to see more options in the coming months.

'Homes listed for sale are still garnering great interest, but the multiple, frenzied offers -- sometimes double-digit bids on one property -- have dissipated in most regions,' Yun said. 'Even in a somewhat calmer market, a number of potential buyers are still choosing to waive appraisals and inspections.'

As of July, 27% of buyers bypassed appraisal and inspection contingencies. By refraining from these evaluations, in most cases, buyers are looking to accelerate the homebuying process, according to Yun.

July Pending Home Sales Regional Breakdown

Month-over-month, the Northeast PHSI fell 6.6% to 92.0 in July, a 16.9% decrease from a year ago. In the Midwest, the index dropped 3.3% to 104.6 last month, down 8.5% from July 2020.

Pending home sales transactions in the South declined 0.9% to an index of 130.9 in July, down 6.7% from July 2020. The index in the West rose 1.9% in July to 99.8, but still down 5.7% from a year prior.

The National Association of Realtors® is America's largest trade association, representing more than 1.5 million members involved in all aspects of the residential and commercial real estate industries.

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*The Pending Home Sales Index 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..."