The Pending Home Sales Index (PHSI), a forward-looking indicator based on signed contracts, decreased 2.6% in August 2012 to 99.2, down from the upwardly revised level of 101.9 in July. However, the August 2012 PHSI was 10.7% higher than the same period a year ago, and the July PHSI reached its highest level since April 2010 when the home buyer tax credit was about to expire.
The National Association of Realtors (NAR) reported that the August PHSI was up 0.9% in the Northeast, but down in the other three regions, especially in the West where the PHSI decreased 7.2%. Year-over-year, three regions posted strong increases, while in the West the PHSI decreased 4.2%. August new home sales increased strongly in the Northeast from the previous month.
If contracts closed at the same time they were signed, this graph would be the correspondence between sales and the PHSI. So the PHSI is a good indicator of what will likely happen to existing home sales when the contracts close in coming months. We anticipate that the September and October existing sales data will reflect today’s pending sales report, suggesting that existing home sales are likely to rise but perhaps at a slower rate than in recent months.
Additionally, there is some concern that some short sales are being accelerated into 2012 due to the looming expiration of the cancelled debt tax exclusion for principal residences. Unless Congress acts, at the end of the year, any mortgage debt forgiven or cancelled as part of an existing home sale will become taxable income. This tax provision likely increased existing home sales in 2012.