After several years of study and data collection, the National Association of REALTORS® developed the Pending Home Sales Index (PHSI), a new leading indicator of housing market activity.
The Pending Home Sales Index measures housing contract activity, and is based on signed real estate contracts for existing single-family homes, condos and co-ops. The PHSI looks at the monthly relationship between existing-home sale contracts and transaction closings over the last four years. A signed contract is not counted as a sale until the transaction closes.
Based on the data from Multiple Listing Services (MLSs) and large brokers, the index provides advance information on future home-sales activity and offers more solid information on changes in the direction of the market than any of the indicators currently available.
Specifically, pending home sales become existing home sales one to two months later. This means that we can use an index derived from pending home sales to predict actual home sales activity.