A forward-looking indicator based on pending home sales shows the market is likely to stabilize in the months ahead, according to the National Association of Realtors.
The Pending Home Sales Index, based on contracts signed in June, was 5.0 percent higher from the downwardly revised May index of 97.5, but is 8.6 percent below June 2006 when it stood at 112.0. This 5.0 percent monthly gain is the largest in more than three years, since a 6.1 percent increase in March 2004.
Lawrencwe Yun, NAR senior economist, said it is encouraging that the increase occurred in all four major regions. However, it is too early to say if homes sales have already passed bottom, he said. Still, major declines in home sales are likely to have occurred already and further declines, if any, are likely to be modest given the accumulating pent-up demand.
The 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.
An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing homes sales.
Annual changes in the index are more closely related to actual market performance than are month to month comparisons. As the relativley new index matures and seasonal adjustment factors are refined, the month to month comparisons will become more meaningful.
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