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August Pending Home Sales Show Surprising Decline

After reaching a two-year high in July, the Pending Home Sales Index (PHSI) fell in August to 99.2, the lowest level since April, the ""National Association of Realtors"":http://www.realtor.org/news-releases/pending-home-sales-decline-in-august (NAR) has reported. Analysts had expected the index to rise to 102.2, but the index declined in three of the four census regions.

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The drop in the PHSI followed a previous report revealing that new home sales for August were essentially flat as compared to July, moving down 0.3 percent.

The slippage in both the PHSI and new home sales ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô both of which are based on contracts, not completed transactions ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô dampens the outlook for home sales. Data from the PHSI are generally reflected in the report on existing home sales two months out, indicating that the August PHSI findings likely mean weaker homes sales when October's survey is released.

Since April, the PHSI has vacillated, with numbers trending downward in April, June, and August, while increasing figures were recorded in May and July. The NAR though pointed to a longer trend: even with the August drop, the index is up 10.7 percent in the last year.

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The drop in the August PHSI follows a string of positive housing indicators: increases in existing and new home sales in July, increases in the Case Shiller Home Price Indexes for July and continued increases in builder confidence in September and in housing starts in August. Both the median and average price of a new single family rose in August. The only negatives in recent reports were a slight drop in housing permits in August and in the median price of an existing home in August.

The PHSI, according to NAR, has improved year-year for 16 straight months, up 10.7 percent in August, a slight retreat from July when it was up 12.6 percent year-year.

Regionally the PHSI improved only in the Northeast, where it rose 0.9 percent to hit 78.2 in August, representing a 19.9 percent uptick year-over-year. In the Midwest, the index declined 2.6 percent to 95.0 in August but remains 19.9 percent higher versus the same month during 2011. Pending home sales in the South slipped 1.1 percent to an index of 110.4 for the period, but are 13.2 percent above August 2011. In the West, the index declined by 7.2 percent in August to 102.5, showing a 4.2 percent drop year-over-year. NAR noted that the poor numbers in the West are attributable to ""broad inventory shortages.""

Lawrence Yun, NAR's chief economist, noted,""The performance in month-to-month contract signings has been uneven with ongoing shortages of lower priced inventory in much of the country, and across most price ranges in the West.""

The index 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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