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 homes sales where a contract is signed, but the transaction has not yet closed. The pending home sales index is a leading indicator of future existing home sales. It typically takes four to eight weeks to close a home sale after signing the contract. 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. The PHSI basis is transactions marked as “pending home sale” in a Multiple Listing Service (MLS). MLS is an online database of properties 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 wealth of information makes PHSI more accurate, and a better predictor of sales, than other measurements such as mortgage applications and new home starts. Falloff rate of home sales which go under contract, but do not close, is accounted for because the PHSI takes the aggregates, or combines, the figures. NAR calculates that 80% of homes which 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 real estate market strength. This belief 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 the house. The mortgage closing represents the end of the sales cycle but is a technicality. Buyers, sellers, and realtors cannot influence the timeline between signed contract and close.
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, its focus is 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 future-looking view means that the PHSI can help realtors predict sales and advise their clients about strategies for selling and buying properties. PHSI also reflects economic conditions and consumer confidence, because it is an immediate measure.