Here’s Why Pending Home Sales Skyrocketed in May

According to the National Association of Realtors, The Pending Home Sales Index (PHSI), a forward-looking indicator, jumped 8.2% to 88.8 in May, up from 82.1 in April. The number is up 13.4% up from May 2010, making this the month since April 2010 to show year-over-year growth. This month’s gains were also the highest since November 2010 when sales jumped 10.6% over October.

This data reflects contracts, but not closings, which usually don’t occur until a month or two after contracts are signed.

The news is giving a boost to real estate stocks (NYSE:IYR), already up 0.12% just minutes after the news, though it doesn’t seem to be helping home builders stocks (NYSE:XHB), down 0.66% today.

PHSI rose across the board, increasing in each region both month-over-month and year-over-year. The PHSI in the Northeast rose 7.3% to 69.2 in May, up 4.4% from a year ago. In the Midwest the index jumped 10.5% to 82.8 and is 17.2% higher than May 2010. Pending home sales in the South increased 4.1% to an index of 95.0 in May and are 14.6% higher than a year ago. In the West the index surged 12.9% to 100.6, up 13.5% from May 2010 figures.

National Association of Realtors chief economist Lawrence Yun says the improvement should spell good news for housing prices. “Absorption of inventory is the key to price improvement, and this solid gain in contract signings implies that home values in many localities are or will soon be stabilizing as inventories get absorbed at a faster pace,” he said. “Some markets have made a rapid turnaround, going from soft activity to contract signings rising by more than 30 percent from a year ago, including areas such as Hartford, Conn.; Indianapolis; Minneapolis; Houston; and Seattle.”

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