Trending Real Estate: A historical review of NAR pending home sales

Slowly but surely we're accumulating data from a variety of sources and turning that data into reports which we'll update on a regular basis. This next report covers the pending home sales index from the National Association of Realtors. According to the NAR:

"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."

Picture #1: Non-seasonally adjusted pending home sales decreased in July, continuing the year-over-year trend that started in the Fall of 2005. The pending home sales index for July was 94.8, compared to 101.4 in July of 2007.

Picture #2: The 6.5% decrease in July was the smallest year-over-year decrease since March of 2006.

Picture #3: July of 2008 represented the lowest July for pending home sales since the index was started in 2001.

Adding it all up: The pending home sales index does appear to be an indicator of sales activity in the one to two months that follow the index report. The index showed its first year-over-year decrease in October of 2005, while existing home sales started to decline in November of 2005.

The index has shown more moderate decreases in recent months, but it remains at historically low levels. Expect low existing home sales for the months of August and September. Given that many current contracts are subject to the less-than-sure sale of another property and/or subject to a bank's approval, it will be interesting to test the relationship between pending and existing home sales over time. When pending home sales start to increase, will existing home sales do the same? That remains to be seen.