Psychological Factors Contribute to Declining Home Sales

The housing market should continue leveling out in the coming months, according to NAR's most recent Pending Homes Sales Index (PHSI). In July, the PHSI stood at 105.6, down 7 percent from the previous month and down 16 percent from July 2005.

The index gauges home sales activity for upcoming months based on the number of transactions that have signed contracts but are not yet closed. A PHSI of 100 or more generally indicates a high level of homes sales activity.

"We've never seen a general decline in the housing market against a healthy economic backdrop where jobs are being created, the economy in growing and interest rates are favorable," said NAR Chief Economist David Lereah.

"Psychological factors are causing some buyers to remain on the sidelines, waiting for prices to stabilize or for more favorable news about the market and the economy. Contributing to this hesitancy is a lot of negative news stories, but in the end we believe that underlying market fundamentals will prevail."The PHSI declined across the nation in July compared with the readings a year ago.

On a regional basis, the PHSI was highest in the South, where it declined 11.3 percent to 122.3.

In the West, the index fell 20.3 percent to 103.1. The PHSI also declined in the Midwest and Northeast regions, falling to 93.3 and 92.1, respectively.

***Taken from the California Association of Realtors Bulletin, dated September 6, 2006.