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Pending-Home Sales Make Strong Debut in May: NAR

The Pending Home Sales Index (PHSI) rose a strong 5.9 percent in May to 101.1, returning to its level of March, the ""National Association of Realtors"":http://www.realtor.org/ (NAR) reported Wednesday.

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The index had slipped in April to 95.5 after reaching its highest level since April 2010.

Economist had expected a more modest increase, 1.2 percent from April to 96.6. The index is up a solid 13.3 percent since May 2011.

The report is another in a string of positive signs for the housing sector. The Case Shiller Index for April, reported Tuesday, showed the first month-over-month price gain in eight months and even last week's report on existing home sales showed the strongest year-over-year growth in prices in six years along with a 10 percent year-over-year gain in sales.

Although existing-home sales slipped in May, the sales pace for the first five months of this year average 4,574 million compared with 4.274 million in the first five months of 2011.

Pending-home sales are counted when sales contracts are signed, and are viewed as a leading indicator of existing home sales; recent reports suggest that home re-sales should be a bit stronger over the next couple of months but at a level that is still fairly subdued. May pending sales would be reflected in the included in the home sales report for July, although the relationship doesn't always hold.

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The PHSI in March ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô which translated into reported sales (closings) in May ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô had been up, 3.8 percent in February, yet May sales were down 1.5 percent from April.

The month-over-month 5.9 percent PHSI increase was the strongest since October 2011 when the index improved with 6.2 percent month-over-month.

The gain was the fourth in the last five months and sixth in the last eight.

The improvement in the index was widespread, up in all four census regions: 14.5 percent month-over-month in the West, 6.3 percent in the Midwest, 4.8 percent in the Northeast and 1.1 percent in the South.

On a year-over-year basis, the index was up 22.1 percent in the Midwest, 19.8 percent in the Northeast, 11.9 percent in the South and 4.8 percent in the West.

The PHSI has been drifting upward, albeit modestly for most of the past two years and appears to have settled in to a stronger positive pattern though closings remain threatened by continuing tight underwriting standards and an uncertain employment picture.

The May figures also reflect seasonality in the traditional home buying season.

Home sales could also be constrained by low inventories which, according to Lawrence Yun, chief economist with NAR, drove May sales lower.

""If credit conditions returned to normal and if we had more inventory, especially in the lower price ranges, more people would become successful buyers,"" Yun said. ""In an environment of historically favorable housing affordability conditions, it's frustrating to see some consumers thwarted in the process.""

The PHSI is based on a large national sample, representing about 20 percent of transactions for existing-home sales. An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales; it coincides with a level that is historically healthy.

About Author: Mark Lieberman

Mark Lieberman is the former Senior Economist at Fox Business Network. He is now Managing Director and Senior Economist at Economics Analytics Research. He can be heard each Friday on The Morning Briefing on POTUS on Sirius-XM Radio 124.
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