This article was originally written by Doug Short. From 2016-2022, it was improved upon and updated by Jill Mislinski. Starting in January 2023, AP Charts pages will be maintained by Jennifer Nash at Advisor Perspectives/VettaFi.
The National Association of Realtors® (NAR) released the January data for its pending home sales index. According to the NAR, "Pending home sales improved in January for the second consecutive month."
WASHINGTON (February 27, 2023) – Pending home sales improved in January for the second consecutive month, according to the National Association of REALTORS®. All four U.S. regions posted monthly gains but saw year-over-year drops in transactions.
The Pending Home Sales Index (PHSI)* — a forward-looking indicator of home sales based on contract signings — improved 8.1% to 82.5 in January. Year-over-year, pending transactions dropped by 24.1%. An index of 100 is equal to the level of contract activity in 2001.
“Buyers responded to better affordability from falling mortgage rates in December and January,” said NAR Chief Economist Lawrence Yun. (more here)
The chart below gives us a snapshot of the index since 2001, the first year data was analyzed. The MoM came in at 8.1%, up from a 1.1% increase last month, and beating the Investing.com forecast of 1.0%.
Over this time frame, the US population has grown by 17.8%. For a better look at the underlying trend, here is an overlay with the nominal index and the population-adjusted variant. The focus is pending home sales growth since 2001.
The above chart shows the percent off turn-of-the-century values. The index for the most recent month is currently 38% below its all-time high. The population-adjusted index is 43% off its high.
Pending versus existing home sales
Pending home sales measures the change in number of homes under contract to be sold but still awaiting the closing transaction. The NAR explained that "because a home goes under contract a month or two before it is sold, the Pending Home Sales Index generally leads Existing-Home Sales by a month or two." Here is a growth overlay of the two series. The general correlation, as expected, is close. And a close look at the numbers supports the NAR's assessment that their pending sales series is a leading index.
