Is the National Association of REALTORS Pending Home Sales Index a Leading Indicator of Existing Home Sales?

The National Association of REALTORS began releasing the Pending Home Sales Index (PHSI) back in December of 2004 as a leading real estate market indicator. I did a previous post to indicate the relationship between pending home sales and mortgage rates and thought it would be interesting to see if the PHSI really can be used as a leading indicator.

As you can see from the chart, it appears that the PHSI is fairly accurate. What is interesting is to see how at certain times like the May-July period the Pending Home Sales Index is relatively flat while the existing home sales data shows a significant jump and what appears to have been the peak. This may be due to a combination real estate listings selling so quick that they are never marketed as “pending” and MLS GIGO.

What I find more interesting in view this is the time since August the consistent gradual decline of the pending index vs the much steeper decline of existing home sales data. The extended decline of pending should point to even lower existing home sales the following month (which is what happened as Jan existing home sales data was down to 6,560,000 units but not charted as still missing Jan. PHSI data).

If the pending home sales data starts to flat line or even increase (possible in the coming peak sales months) than we should see a reversal in the existing home sales volume as well.

Will it happen? I am not sure… but your thoughts and theories are requested!

Data Sources: PHSI Data | Existing Home Sales