by Stephen Melman – Eye on Housing
The Pending Home Sales Index, a forward-looking indicator based on signed contracts, increased 0.3% in September 2012 to 99.5, up from 99.2 in August. Moreover, the September 2012 PHSI was 14.5% higher than the same period a year ago. Year-over-year, the PHSI has increased for 17 straight months.
The National Association of Realtors (NAR) reported monthly increases in the September PHSI for the Northeast, South and West, but a 5.8% decrease in the Midwest. This decrease is consistent with the 37.3% monthly decrease in new home sales in the Midwest reported yesterday. NAR reported strong year over year PHSI increases in the Northeast, Midwest and South, but only a small increase of 0.8% in the West.
If contracts closed at the same time they were signed, this graph would be the correspondence between sales and the PHSI. So the PHSI is a good indicator of what will likely happen to existing home sales when the contracts close in coming months. We anticipate that the October and November existing sales data will reflect today’s pending sales report, suggesting that existing home sales are likely to rise, but perhaps at a slower rate than in recent months.
Improved year-over-year existing home sales suggest a stronger demand for remodeling as well. Today’s PHSI release comes out on the same day that the NAHB Remodeling Market Index (RMI) reached 50, the highest level since the third quarter of 2005.
Additionally, there is some concern that some short sales are being accelerated into 2012 due to the looming expiration of the cancelled debt tax exclusion for principal residences. Unless Congress acts, at the end of the year, any mortgage debt forgiven as part of an existing home sale will become taxable income. This tax provision likely increased existing home sales in 2012.