For the past several months I have been trying to find a meaningful relationship between NAR's pending home sales index and existing home sales, I have been unable to.
The index is an indication of the number of properties that are currently under contract and are expected to close within 30-60 days
With Wall St.'s 214 point rally yesterday which was due in part to NAR's release of the March pending home sales data which showed a 3.2% month over month increase, I thought it would be worth trying to connect the dots with this indicator to see if there was indeed a statistically significant relationship between NAR's pending index and existing home sales.
Here is what I have found in terms of the relationship between the pending home sales index and the following month's existing home sales.
October 2008 Pending Index -0.7% / November 2008 Existing Home Sales -8.6%
November 2008 Pending Index -4.0% / December 2008 Existing Home Sales +6.5%
December 2008 Pending Index +6.3% / Janaury 2009 Existing Home Sales -5.3%
January 2009 Pending Index -7.7% / February 2009 Existing Home Sales +5.1%
February 2009 Pending Index +2.1% / March 2009 Existing Home Sales -3.0%
March 2009 Pending Index +3.2% / April 2009 Existing Home Sales ???
What NAR's pending home sales index has revealed over the past couple of months is that the margin for error in predicting existing home sales within a 30 day period can be off by as much as 12%. Predicting home sales within 60 days can be off by as much as 7%.
In short, while the goal of the pending home sales index was intended to be a leading indicator for existing home sales, the volatility and margin for error over the past several months has certainly called into question the relevance of the index.