U.S. Pending Home Sales Rose 1.6% in February; Northeast Suffered Slight Decline in Pending Transactions

WASHINGTON—Pending home sales in January grew 1.6%, according to statistics released today (March 28) by the National Association of Realtors. The Midwest and South posted monthly gains in transactions while the Northeast and West recorded losses. All four U.S. regions registered year-over-year decreases. 

The Pending Home Sales Index (PHSI)—a forward-looking indicator of home sales based on contract signings—increased to 75.6 in February. Year-over-year, pending transactions were down 7.0%. An index of 100 is equal to the level of contract activity in 2001. 

“While modest sales growth might not stir excitement, it shows slow and steady progress from the lows of late last year,” said NAR Chief Economist Lawrence Yun. “Ongoing job gains are clearly increasing demand along with more inventory.” 

Pending Home Sales Regional Breakdown 

The Northeast PHSI decreased 0.3% from last month to 63.4, a decline of 9.0% from February 2023. The Midwest index soared 10.6% to 81.6 in February, down 2.5% from one year ago. 

The South PHSI rose 1.1% to 89.5 in February, falling 8.5% from the prior year. The West index fell 6.5% in February to 57.1, down 7.9% from February 2023. 

“The high-cost regions in the Northeast and West experienced pullbacks due to affordability challenges,” added Yun. “Home prices rising faster than income growth is not healthy and adds challenges for first-time buyers.” 

Yun further noted, “There will be a steady rise in inventory from recent growth in home building. Additionally, many sellers, who delayed listing in the past two years, will begin to put their homes on the market to move to a different home that better fits their new life circumstances—such as changes in family composition, jobs, commuting patterns and retirees wanting to be closer to their grandkids.” 

Pending contracts are good early indicators of upcoming sales closings. However, the amount of time between pending contracts and completed sales is not identical for all home sales. Variations in the length of the process from pending contract to closed sale can be caused by issues such as buyer difficulties with obtaining mortgage financing, home inspection problems, or appraisal issues. 

The index is based on a sample that covers about 40% of multiple listing service data each month. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months. 

An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined. By coincidence, the volume of existing-home sales in 2001 fell within the range of 5.0 to 5.5 million, which is considered normal for the current U.S. population.