The National Association of Realtors (NAR) seasonally adjusted pending home sales index declined. Our analysis is mixed. The quote of the day from this NAR release:

... Monthly closings have recently been oscillating back and forth, but this third consecutive decline in contract activity implies a possible topping off in sales ...

Analyst Opinion of Pending Home Sales

The unadjusted data shows the rate of year-over-year growth reversed last month's decline - and the more important rolling averages are in negative territory but improving.

Pending home sales are based on contract signings, and existing home sales are based on the execution of the contract (contract closing).

The NAR reported:

• Pending home sales index was down 0.8 % month-over-month and down 1.7 % year-over-year.
• The market [from Bloomberg / Econoday} was expecting month-over-month growth of 0.4 % to 0.8 % (consensus +0.5 %) versus the -0.8 % reported.

Econintersect's evaluation using unadjusted data:

• the index growth rate accelerated 6.3 % month-over-month and up 0.5 % year-over-year.
• The current trend (using 3 month rolling averages) is in negative territory but improving.
• Extrapolating the pending home sales unadjusted data to project June 2017 existing home sales would be up 0.5 % year-over-year for existing home sales.

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From Lawrence Yun , NAR chief economist:

.... it's clear the critically low inventory levels in much of the country somewhat sidetracked the housing market this spring. Monthly closings have recently been oscillating back and forth, but this third consecutive decline in contract activity implies a possible topping off in sales. Buyer interest is solid, but there is just not enough supply to satisfy demand. Prospective buyers are being sidelined by both limited choices and home prices that are climbing too fast.

The persistent housing shortages seen in several markets are most severe in the lower price ranges. That's very apparent when looking at the percent change in closings in May compared to a year ago. Sales of homes under $100,000 last month were down 7.2 percent from last year and up only 2.0 percent for those between $100,000 and $250,000. In higher price brackets, sales expanded incrementally all the way up to massive increases of 26.0 percent for homes priced between $750,000 and $1 million and even more for those $1 million and up (29.1 percent).

Weaker financial and economic confidence could also be playing a role in the slowdown in contract activity. NAR's quarterly Housing Opportunities and Market Experience (HOME) survey, released earlier this week, found that fewer renters think it's a good time to buy a home, and respondents overall are less confident about the economy and their financial situation than earlier this year.

The lack of listings in the affordable price range are creating lopsided conditions in many areas where investors and repeat buyers with larger down payments are making up a bulk of the sales activity. Meanwhile, many prospective first-time buyers can't catch a break. Prices are going up and there's intense competition for the homes they're financially able to purchase.

A much higher share of homeowners compared to a year ago think now is a good time to sell1, but until they do, sales will likely stay flat and low inventory will keep price growth moving swiftly.e National Association of Realtors (NAR) pending home sales index offers a window into predicting existing home sales. The actual home sale might appear in the month the contract was signed (cash buyers can close quickly), or in the following two months.

Econintersect forecasts unadjusted existing home sales by offsetting the pending home sales index one month. This forecast suggests unadjusted existing home sales of 575,000 in June 2017.

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Using this methodology, 500,000 existing home unadjusted sales were forecast for May 2017 versus the actual reported number of 555,000 (which is subject to further revision).

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Keeping things real - home sales volumes are only 2/3rds of previous levels.

Caveats on the Use of Pending Home Sales Index

According to the NAR:

NAR's Pending Home Sales Index (PHSI) is released during the first week of each month. It is designed to be a leading indicator of housing activity.

The index measures housing contract activity. It is based on signed real estate contracts for existing single-family homes, condos and co-ops. A signed contract is not counted as a sale until the transaction closes. Modeling for the PHSI looks at the monthly relationship between existing-home sale contracts and transaction closings over the last four years.

…… When a seller accepts a sales contract on a property, it is recorded into a Multiple Listing Service (MLS) as a "pending home sale." The majority of pending home sales become home sale transactions, typically one to two months later.

NAR now collects pending home sales data from MLSs and large brokers. Altogether, we receive data from over 100 MLSs & 60 large brokers, giving us a large sample size covering 50% of the EHS sample. This is equal to 20 percent of all transactions.

In other words, Pending Home Sales is an extrapolation of a sample equal to 20% of the whole. Econintersect uses Pending Home Index to forecast future existing home sales.