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Pending Home Sales Index Reaches Record High as Sales Ascend 8.8% in August

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The Pending Home Sales Index (PHSI), a forward-looking indicator of home sales based on contract signings, rose 8.8% to 132.8 – a record high – in August.

WASHINGTON, D.C. October 1, 2020 (Biz Republic) — Pending home sales in August continued to move upward, marking four uninterrupted months of positive contract activity, according to the National Association of Realtors®. Each of the four major regions experienced growth in month-over-month and year-over-year pending home sales transactions.

The Pending Home Sales Index (PHSI),* www.nar.realtor/pending-home-sales, a forward-looking indicator of home sales based on contract signings, rose 8.8% to 132.8 – a record high – in August. Year-over-year, contract signings rose 24.2%. An index of 100 is equal to the level of contract activity in 2001. “Tremendously low mortgage rates – below 3% – have again helped pending home sales climb in August,” said Lawrence Yun, NAR’s chief economist.

“Additionally, the Fed intends to hold short-term fed funds rates near 0% for the foreseeable future, which should in the absence of inflationary pressure keep mortgage rates low, and that will undoubtably aid homebuyers continuing to enter the marketplace. “While I did very much expect the housing sector to be stable during the pandemic-induced economic shutdowns, I am pleasantly surprised to see the industry bounce back so strongly and so quickly.”

Yun notes that while pending contracts are at an all-time high, that will not necessarily translate to a record number of home sales because not all contracts lead to closings and due to sampling size variations. He also points out that pending home sales are outperforming many pre-pandemic averages, but says that without matching supply, the recovery will not be sustainable.

“Home prices are heating up fast,” he said. “The low mortgage rates are allowing buyers to secure cheaper mortgages, but many may find it harder to make the required down payment.” Realtor.com®’s Housing Market Recovery Index, which reveals metro areas where the market has recovered or even exceeded its previous January levels, showed the greatest recoveries as of September 19 were in Seattle-Tacoma-Bellevue, Wash.; Las Vegas-Henderson-Paradise, Nev.; Boston-Cambridge-Newton, Mass.-N.H.; Denver-Aurora-Lakewood, Colo.; and Philadelphia-Camden-Wilmington, Pa.-N.J.-Del.-Md.

All four regional indices recorded increases in contract activity on a month-over-month basis in August. The Northeast PHSI grew 4.3% to 117.1 in August, a 26.0% jump from a year ago. In the Midwest, the index rose 8.6% to 124.5 last month, up 25.0% from August 2019. Pending home sales in the South increased 8.6% to an index of 154.2 in August, up 23.6% from August 2019. The index in the West rose 13.1% in August to 120.3, up 23.6% from a year ago.

The National Association of Realtors® is America’s largest trade association, representing more than 1.4 million members involved in all aspects of the residential and commercial real estate industries. *The Pending Home Sales 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.

The index is based on a large national sample, typically representing about 20% of transactions for existing-home sales. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months.

An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined. By coincidence, the volume of existing-home sales in 2001 fell within the range of 5.0 to 5.5 million, which is considered normal for the current U.S. population.

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