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Pending Home Sales Index levels out in May

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The index of pending home sales, a leading gauge for the housing sector, rose slightly in May -- an indication that the market is stabilizing, according to the National Association of Realtors®.

The Pending Home Sales Index (PHSI), based on contracts signed in May, was up 1.3 percent to a level of 113.4 from an index of 111.9 in April, but was 10.1 percent lower than May 2005.

The index is derived from pending sales of existing homes. A sale is listed as pending when the contract has been signed and the transaction has not yet closed; pending sales typically are finalized within a month or two of signing. An index of 100 is equal to the average level of contract activity during 2001, the first year to be examined, and was the first of five consecutive record years for existing home sales.

“The slight change in pending home sales indicates the market is beginning to level out,” says David Lereah, NAR’s chief economist. “This is consistent with our forecast, which is showing a soft landing for the housing sector. We are entering the second phase of the transition period from the housing boom, in which sellers are becoming more realistic about their expectations -- sales are stabilizing and annual home price appreciation is returning to historic norms.”

Regionally, the PHSI in the South was down 1.7 percent in May and 7.3 percent lower than May 2005. In the Northeast, the index was down 0.6 percent in May and 7.8 percent below a year ago. The index in the Midwest was up 0.6 percent to 100.9 in May but 13.6 percent lower than May 2005. The index in the West rose 9.9 percent to 110.1 in May but was 12.9 percent below a year earlier.

The Pending Home Sales Index is based on a large national sample, typically representing about 20 percent of transactions for existing home sales. In developing the model for the index, it was demonstrated that the level of monthly sales contract activity from 2001 through 2004 closely parallels the level of closed existing home sales in the following two months.

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