Lee Morof's Real Estate Blog

The National Association of REALTORS® (NAR) reports that the Pending Home Sales Index fell 4.3 percent in December as compared to the month prior. The index now reads 101.7.

The Pending Home Sales Index measures the number of U.S. homes that have gone “into contract”, but have not yet closed. The report is based on data collected from local real estate associations, and from national brokers.

Despite December’s drop, however, the annual rate at which contracts for a home purchase were drawn increased 6.9 percent from one year ago, and marked the 20th consecutive month of annual purchase contract gains.

NAR reports that 80% of homes under contract are closed with 60 days, with the majority of the remained homes “sold” within months 3 and 4.

Analysts believe that December’s Pending Home Sales Index drop is not a result of a weakening housing market. Rather, it’s a function of a falling national home supply; in particular, a shortage of homes in the West Region offered a prices under $100,000.

The national housing inventory is currently at an 11-year low. However, regionally, results varied :

• Northwest : -5.4 percent from November; +8.4 percent from one year ago
• Midwest : +0.9 percent from November; +14.4 percent from one year ago
• South : -4.5 percent from November; +10.1 percent from one year ago
• West: -8.2 percent from November; -5.3 percent from one year ago

Although December’s Pending Home Sales Index dropped as compared to November, the year-to-year growth of pending home sales suggests a broader improvement in the U.S. housing market. Furthermore, the index is a strong indicator of existing home sales, which means that this season’s home sales should outpace those from 2012.

The Pending Home Sales Index is bench-marked to 100, the value from 2001, which was the index’s first year of existence. 2001 was considered a strong year for the housing market so last month’s 101.7 is considered a positive measure for the housing market.

Analysts project a strong Spring market in Birmingham and nationwide.

Homes were sold at a furious pace last month.

According the National Association of REALTORS® (NAR), the Pending Home Sales Index rose 5.2 percent in October, crossing the benchmark 100 reading, and moving to 104.8.

It’s a 5-point improvement from September’s revised figure and the highest reading April 2010 — the last month of that year’s federal home buyer tax credit.

October also marks the 18th consecutive month during which the index showed year-to-year gains.

As a housing market metric, the Pending Home Sales Index (PHSI) differs from most commonly-cited housing statistics because, instead of reporting on what’s already occurred, it details what’s likely to happen next.

The PHSI is a forward-looking indicator; a predictor of future sales. It’s based on signed real estate contracts for existing single-family homes, condominiums, and co-ops. Later, when the contract leads to a closing, the “pending” home sale is counted in NAR’s monthly Existing Home Sales report.

Historically, 80 percent of homes under contract, and thus counted in the Pending Home Sales Index, will go to settlement within a 2-month period, and a significant share of the rest will close within months 3 and 4. The PHSI is a predictor of Existing Home Sales.

Regionally, the Pending Home Sales Index varied in October 2012 :

• Northeast Region : 79.2; +13 percent from October 2011
• Midwest Region : 104.4; +20 percent from October 2011
• South Region : 117.3; +17 percent from October 2011
• West Region : 105.7; +1 percent from October 2011

A Pending Home Sales Index reading of 100 or higher denotes a “strong” housing market.

Of course, with rising home sales comes rising home values. 2012 has been characterized by strong buyer demand amid falling housing supplies. It’s one reason why the Case-Shiller Index and the FHFA’s Home Price Index are both showing an annual increase in home prices. Plus, with mortgage rates low as we head into December, the traditional “slow season” for housing has been anything but.

The housing market in Birmingham is poised to end 2012 with strength. 2013 is expected to begin the same way.