Pending home sales declined modestly in June after three months of what the National Association of Realtors® (NAR) called "solid gains." NAR's Pending Home Sales Index (PHSI) declined 1.1 percent to 102.7 in June from 103.8 in May. June's value was 7.3 percent below the level in June 2013 of 110.8.

The May Index had surged by 6.11 percent compared to April, the largest month-over-month increase for the index since the period just before the end of the homebuyer tax credit in April 2010. Despite the June dip, that the index remained above 100 for the second month in a row is considered positive. Prior to the May surge the PHSI had failed to reach 100, which is viewed as an average level of contract activity, since November 2013.

The PHSI is a forward-looking indicator of home sales based on signed purchase contracts. The contracts are generally expected to culminate in completed sales transactions within 30 to 60 days.

Lawrence Yun, NAR chief economist views the housing market as stabilizing but sees ongoing challenges impeding it reaching its full sales potential. "Activity is notably higher than earlier this year as prices have moderated and inventory levels have improved," he said. "However, supply shortages still exist in parts of the country, wages are flat, and tight credit conditions are deterring a higher number of potential buyers from fully taking advantage of lower interest rates." 

Still Yun expects that sales will tick upward during the second half of the year. "The good news is that price appreciation has decreased to its slowest pace since March 2012 behind much needed increases in inventory," he said. "With rents rising 4 percent annually, potential buyers are less likely to experience sticker shock and can make smart decisions on whether or not it makes sense to buy or continue renting." 

He expects that existing home sales will be down 2.8 percent in 2014 to 4.95 million units compared to 5.1 million in 2013. The national median home price is expected to increase between 5 and 6 percent both this year and next.

The PHSI was mixed across regions. In the Northeast it fell 2.9 percent to 83.8 and is 3.2 percent below a year ago. In the Midwest the index rose 1.1 percent to 106.6, but remains 5.5 percent below June 2013.

Pending home sales in the South dipped 2.4 percent to an index of 113.8 in June, and is 4.3 percent below a year ago. The index in the West inched 0.2 percent in June to 95.7, but remains 16.7 percent below June 2013.

The PHSI is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. 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.