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Decline in Pending Home Sales Slowing

March 6, 2006

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WASHINGTON – A slide in pending home sales is beginning to level out, an indication of a more sustainable level of home sales in the months ahead, according to the National Association of Realtors®.

The Pending Home Sales Index,* based on contracts signed in January, slipped 1.1 percent to a level of 116.3 from an upwardly revised index of 117.6 in December, and is 4.8 percent below January 2005. After hitting a record of 128.2 last August, the index declined at a more rapid pace through December, averaging nearly 3 percentage points per month.

The index is derived from pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed; pending home sales typically are finalized within one or two months of signing. An index of 100 is equal to the average level of contract activity during 2001, the first year to be examined, and was the first of five consecutive record years for existing-home sales.

David Lereah, NAR’s chief economist, had foreseen a flattening in the index. “This looks like we’re touching down for the soft landing we’ve been expecting,” he said. “We are at a much more sustainable level of home sales now – a welcome cooling from the super-heated conditions that were driving exceptional price gains. This will give people the time to be more thoughtful about a process that is the biggest single investment most of us make in our lifetime.”

“Home sales at this level are historically strong and provide a solid foundation for the overall economy,” he said. “Business spending will lead economic growth this year, and housing wealth will help to support consumer spending.”

Regionally, the PHSI in the Midwest rose 6.0 percent in January to 114.3 but was 1.0 percent below January 2005. In the Northeast, the index increased 0.4 percent to 94.8 but was 12.0 percent below a year ago. The index in the West declined 1.9 percent to 115.8 in January and was 13.6 percent lower than January 2005. The index in the South dropped 5.1 percent to a level of 128.6 in January but was 2.0 higher than a year ago.

Source: The National Association of Realtors

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