The Pending Home Sales Index, or PHSI, is a leading indicator of housing market activity. The Index is released monthly by the National Association of Realtors (NAR). As a future-facing indicator, homebuyers and investors can use the PHSI to inform and strategize property purchases.
The National Association of Realtors has released the Pending Home Sales Index every month since 2001. The Index is designed to measure activity in housing contracts, which can help predict future closing activity.
The PHSI sets “100” at the average level of contract activity seen back in 2001. (Coincidentally, home sales volume data from that year fell within the current “normal” of 5.0 to 5.5 million units.)
When the index rises above 100, home contract activity has exceeded 2001 levels. But when the PHSI falls below 100, fewer home contracts are being signed.
The Pending Home Sales Index samples about 40% of the data from Multiple Listing Services every month. These are online databases that chronicle real estate properties’ movement through the sales cycle. Buyers, sellers and professionals – realtors, lenders, title agents, etc. – use MLSs to monitor the housing market in real-time.
More specifically, the PHSI tracks contract signings on existing single family homes, condos and co-ops. That means it examines pending sales, where the buyer and seller have entered a contract but not closed the deal. NAR estimates that around 80% of homes under contract end up closing within 4-8 weeks. (Exact timelines vary based on hiccups in the appraisals, home inspections and the mortgage process.)
Because it tracks signed contracts, the Index is one of the most accurate leading, or forward-facing, indicators of home sales. That makes PHSI data a better predictor of future sales than new home starts (construction data) and mortgage application.
Investors and realtors can use PHSI data to make predictions about the future housing market. The Index can help inform your real estate investing strategy and – for realtors and investment firms – advise clients about wise property moves.
The Index’s leading status also means that it’s a fairly accurate reflection of current economic conditions and even consumer confidence. When consumers aren’t confident, they’re less likely to sign a contract to buy a house. (Let alone go through with it.)
The PHSI is just one of hundreds of potential indicators you could watch to glean information about the economy. But in today’s fast-paced, data-driven world, nobody has time for that much research. And ultimately, many of these indicators are just best guesstimates, anyway.
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