Pending home sales fell off of the 19-month high reached in November according to figures released on Wednesday by the National Association of Realtors® (NAR), but were still higher than one year ago.  NAR's Pending Home Sales Index (PHSI) dropped from 100.1 in November to 96.6 in December, a decline of 3.5 percent.  December pending home sales were still 5.6 percent above the December 2010 index of 91.5.

The PHSI is a measure of signed sales contracts for home purchases where the transaction has not closed.  It is considered a forward indicator as the sale is usually finalized within one or two months of contract signing.  An index of 100 is equal to the average level of contract activity during 2001.

Lawrence Yun, NAR chief economist, said the trend line remains positive.  "Even with a modest decline, the preceding two months of contract activity are the highest in the past four years outside of the homebuyer tax credit period," he said.  "Contract failures remain an issue, reported by one-third of Realtors^® over the past few months, but home buyers are not giving up."

Yun said some buyers successfully complete the sale after a contract delay, while others stay in the market after a contract failure and make another offer.  "Housing affordability conditions are too good to pass up," he said.  "Our hope is lending conditions will gradually improve with sustained increases in closed existing-home sales."

On a regional basis results were mixed with three regions showing increases on a year to year basis but only one increasing during the December.

Pending Home Sales by Region

NAR also issued an economic forecast which predicts a healthy growth in both real and nominal GPD over the next two years with real GDP growing in a historically normal range of around 3 percent and the unemployment rate falling under 8 percent by 2013. 

Housing starts are expected to improve to around 750,000 in 2012 and reach a million the next year - both figures well below the historically typical 1.5 million.  Housing sales, both new and existing, will remain relatively flat with new home sales reaching a half million by the end of 2013.   Existing home sales are estimated to have totaled 4.26 million in 2011 and will rise gradually to 4.45 million and 4.62 million in 2012 and 2013 respectively. 

Inventories are not projected into the future, but the supply of existing homes is trending down and is now around 2.25 million.  The inventory of new homes has declined to a nearly negligible level, however given the pace of sales, both inventories represent about a six month supply.

NAR expects median prices of both new and existing homes to rise only slightly from current levels of$223,400 and $166,100 during 2012 but will rise more rapidly during 2013 to a median level of $235,800 and $172,600 by year end.