Here is a graph of the NAR's Pending Home Sales index (left axis) and existing home sales (left axis on a seasonally adjusted annual rate basis):



Click on graph for large image.



Note: the scale doesn't start at zero to better show the change.



A few key points:



1) The Pending Home sales index leads existing home sales by about 45 days.



2) The peaks in the Pending Home sales index are related to the home buyer tax credit. For the 2nd tax credit, the peak for the pending index was much higher than the existing home sales spike. One reason is that short sales sometimes take longer to close - and since the tax credit closing date was extended, these sales will close later. But probably the more important reasons are: a) appraisals are coming in below the agreed upon price, because the asking prices for similar homes have fallen since the end of April, and b) some buyers put in offers on two homes to beat the tax credit deadline, and then decided which house to buy.



3) It is hard to tell from the Pending Home sales index how far existing home sales will fall in July and August. However, with the Pending home sales index below the lows of early 2009, a first guess might be 4.5 million or so. (Existing home sales in Jan 2009 were 4.49 million SAAR).



4) With July inventory of about 4 million units and sales of 4.5 million units (SAAR), the months-of-supply will be just under 11 months and that will put downward pressure on prices. (see Existing Homes: Double Digit Months-of-Supply Watch )