NAR's Pending Home Sales Index Becoming Irrelevant

By
Real Estate Broker/Owner

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.

 

 

Comments (6)

Jim Crawford
Maximum One Executive REALTORS® - Atlanta, GA
Jim Crawford Atlanta Best Listing Agents & REALTOR

Great post.  You are correct.  All it is is spin.  What I really have come to detest is NAR's revised figures.  They must have someone that is mentally challenged that does note even have a GED diploma doing the math!  Do they realize how stupid we look to the public?

May 05, 2009 03:12 AM
Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

This is so funny. 

I spoke with a builder a few months ago who said that they were selling about "1 house a month".

How many are "coming back", I asked.

"About 1 a month", the rep said. 

Fact is, they closed 3 homes last year, one was my sale. 

 

May 05, 2009 03:18 AM
Amanda Wilson
EWM International Realtors, Inc. - Fort Lauderdale, FL
Real Estate Advisor

Absolutely...it's a spin!!

May 05, 2009 03:19 AM
Lou Ludwig
Ludwig & Associates - Boca Raton, FL
Designations Earned CRB, CRS, CIPS, GRI, SRES, TRC

Hi Mark

The NAR number may be considered the "best guess". You really have to look at your local numbers.

Good luck and success.

Lou Ludwig

May 05, 2009 03:50 AM
Mark MacKenzie
Phoenix, AZ

Jim:  NAR may look stupid to the public, but apparently Wall St. loves everything they have to say. :)

Lenn:  Funny story. :)  This is exactly the point, pending home sales are no longer relevant as in indicator of future home sales.

Amanda:  Thanks for the comment. :)

Lou:  I agree about the local numbers, but you would think that national pending home contracts would relate to national existing home sales, but they don't.

May 05, 2009 03:56 AM
Patricia Aulson
BERKSHIRE HATHAWAY HOME SERVICES Verani Realty NH Real Estate - Exeter, NH
Realtor - Portsmouth NH Homes-Hampton NH Homes

Good post today, thanks for getting it out to AR.

Patricia Aulson/Portsmouth Nh Real Estate

May 05, 2009 04:29 AM