Pending home sales have increased for the second consecutive month, according to the National Association of Realtors®.

The Pending Home Sales Index,* a forward-looking indicator, rose 4.3 percent to 82.3 based on contracts signed in August from a downwardly revised 78.9 in July, but is 20.1 percent below August 2009 when it was 103.0. The data reflects contracts and not closings, which normally occur with a lag time of one or two months.

Lawrence Yun, NAR chief economist, said the latest data is consistent with a gradual improvement in home sales in upcoming months. “Attractive affordability conditions from very low mortgage interest rates appear to be bringing buyers back to the market,” he said. “However, the pace of a home sales recovery still depends more on job creation and an accompanying rise in consumer confidence.”

Although Yun expects a continuing steady rise in home sales from favorable affordability conditions and some job creation, he cautioned any sudden rise in mortgage rates could slow the recovery. “Current low consumer price inflation has helped keep mortgage interest rates very attractive this year. However, recent rising trends in producer prices at the intermediate and early stages of production, along with very high commodity prices, are raising concerns about future inflation and future mortgage interest rates,” he said. “Higher inflation would mean higher mortgage interest rates. In the meantime, housing affordability is hovering near record highs.”

The PHSI in the Northeast declined 2.9 percent to 60.6 in August and remains 28.8 percent below August 2009. In the Midwest the index rose 2.1 percent in August to 68.0 but is 26.5 percent below a year ago. Pending home sales in the South increased 6.7 percent to an index of 90.8 but are 13.1 percent below August 2009. In the West the index rose 6.4 percent to 101.1 but remains 19.6 percent below a year ago.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.

The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.

The 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 parallels the level of closed existing-home sales in the following two months. There is a closer relationship between annual index changes (from the same month a year earlier) and year-ago changes in sales performance than with month-to-month comparisons.

An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales.