Pending Home Sales Index – PHSI
What is ‘Pending Home Sales Index – PHSI’
The Pending Home Sales Index (PHSI) is an index created by the National Association of REALTORS® (NAR) that tracks homes sales in which a contract is signed but the sale has not yet closed. The pending home sales index is a leading indicator of future existing home sales as it typically takes four to eight weeks to close a sale after a contract has been signed. 2001 was the first year data was analyzed for the PHSI.
BREAKING DOWN ‘Pending Home Sales Index – PHSI’
The Pending Home Sales Index (PHSI) is considered the leading indicator of housing sales because it is based on a large sample of housing contracts in the United States. PHSI is based on transactions marked “pending home sale” in a Multiple Listing Service (MLS), an online database of houses at all stages of the sales cycle. There are multiple MLSes across the country. An MLS is used by realtors, buyers, sellers, lenders, brokers, title agents and others to access accurate real-time information about individual transactions and the real estate market. The PHSI is based on information from over 100 MLSs and accounts for 20 percent of all transactions. This makes PHSI more accurate and a better predictor of sales than other measures such as mortgage applications and new home starts. Falloff rate of home sales that go under contract but do not close are accounted for, because the PHSI takes the numbers in aggregate. NAR calculates that 80 percent of homes that go into contract end up closing within two months.
Pending Home Sales Index (PHSI) vs Existing Home Sales
The number of existing home sales are released monthly by the National Association of REALTORS® (NAR) along with the Pending Home Sales Index (PHSI), but PHSI is generally considered a more accurate measure of the strength of the real estate market. This is because the majority of the labor involved in selling a home for the seller, buyer, realtors, and lender are performed to lead to a signed contract on a home. The close on the mortgage represents the end of the sales cycle, but is a technicality, and the timeline between signed contract and close can generally not be influenced by the buyer or realtor.
This means that PHSI measures the number of sellers listing and buyers buying, as well as the activity of the realtors involved. Since PHSI is an index maintained and published by the NAR, it is focused on measuring activity by realtors.
While not all signed contracts will result in closed sales, PHSI is generally a highly accurate measure of existing home sales one to two months in the future. This means that PHSI can help realtors predict sales and advise their clients about strategies for both selling and buying a house. PHSI also reflects economic conditions and consumer confidence, because it is an immediate measure.
By Investopedia Staff