What is the Pending Home Sales Index (PHSI)?
The Pending Home Sales Index (PHSI) is an index created by the National Association of Realtors (NAR) which tracks home sales when a contract is signed, but the transaction has not yet closed.
The PHSI is a leading indicator of future sales of existing homes. It usually takes four to eight weeks to complete a home sale after signing the contract. 2001 was the first year that data was analyzed for PASS.
Key points to remember
- The Pending Home Sales Index (PHSI) is a monthly housing market index published by the National Association of Realtors.
- The PHSI shows the number of sales in which a contract has been signed, but the transaction has not yet closed; the closing process can take up to two months.
- The index is considered a leading economic indicator of future existing home sales and is watched by stock market participants for clues about the health of the economy.
- The PHSI is more relevant than monthly existing home sales, which documents the number of home sales by looking at mortgage closings.
Understanding the Pending Home Sales Index (PHSI)
The Pending Home Sales Index (PHSI) is considered the main indicator of home sales, as it is based on a large sample of US housing contracts. The PHSI database consists of transactions marked as “pending house sale” in a Multiple Listing Service (MLS). MLS is an online database of properties at all stages of the sales cycle.
There are several MLSs 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% of all transactions.This wealth of information makes the PHSI more accurate and a better predictor of sales than other metrics such as mortgage applications and new home starts. The drop rate of home sales that go under contract, but do not close, is taken into account because the PHSI takes the aggregates, or combines, the numbers. NAR calculates that 80% of homes that enter into contract end up closing within two months.
Pending Home Sales Index (PHSI) vs. Existing Home Sales
Number of Sales of existing houses are released monthly by the National Association of REALTORS® (NAR) along with the Pending Home Sales Index (PHSI), but the PHSI is generally considered a more accurate measure of real estate market strength.This belief is due to the fact that the majority of the work involved in selling a home for the seller, buyer, realtors and lender is in the service of getting a signed contract on the home.
Meanwhile, the mortgage close, as measured by the existing home sales index, represents the end of the sales cycle but is a technicality. Buyers, sellers and real estate agents cannot influence the time between the signing of the contract and its closing.
This means that PHSI measures the number of registered sellers and buyers buying, as well as the activity of the estate agents involved. Since the PHSI is an index maintained and published by the NAR, it focuses on measuring the activity of real estate agents.
While not all signed deals translate into closed sales, the PHSI is generally a very accurate measure of existing home sales within one to two months. This forward-looking view means that PHSI can help real estate agents predict sales and advise their clients on strategies for selling and buying properties. The PASS also reflects economic conditions and consumer confidence, as it is an immediate measure.