December Pending Home Sales Index takes sharpest plunge of 2014



Pending home sales index

The PHSI (Pending Home Sales Index) is published monthly by the National Association of Realtors (or NAR). It’s considered a leading indicator for the housing market. It measures activity in housing contracts signed for existing single-family homes, condominiums, and co-ops.

Typically, it takes one to two months for a contract signing to be converted into a sale. Hence, this indicator leads the NAR’s existing homes data by that period. The NAR released its existing home sales report the week before the PHSI.

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When a sales contract for a home is accepted, it’s recorded in a Multiple Listing Service (or MLS) as a pending home sale. The NAR collects data from more than 100 MLSs and large brokers. The sample size used by the NAR is about 50% of the existing home sales sample and accounts for nearly 20% of all transactions.

Higher contract signings may mean more business for homebuilders and retailers such as PulteGroup (PHM), Toll Brothers (TOL), and Lowe’s (LOW). Associated ETFs such as the S&P SPDR Homebuilder ETF (XHB) invest about 10% of their assets in these three companies. These ETFs can also be expected to do well if these companies do well. About 20% of the iShares Dow Jones US Home Construction Index Fund’s (ITB) assets are invested in these three companies.

December 2014 report

Contract signing activity for existing homes fell by 3.7% in December 2014 with the PHSI falling to 100.7 from a downwardly revised 104.6 level in November. This was the sharpest decline in 2014. This index was up 6.1% from a year ago. High prices of existing homes, availability of fewer homes, and tight credit conditions were primarily responsible for this monthly fall.

Corroborating the low availability of houses, Lawrence Yun, NAR chief economist, said, “Total inventory fell in December for the first time in 16 months, resulting in fewer choices for buyers and a modest uptick in price growth in markets throughout the country.”

Contract signing fell across the four regions of the United States with the Northeast region seeing a 7.5% fall from November.

From the next article onward, we’ll look at how the Treasury bills auctions fared.


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