The NAR assumes that 75%-80% of all homes pending will close within 60 days while the remaining will close within 120 days. Thus it is considered a prediction of future home sales.

The index is intended to predict home sales but it may not be it's best use for several reasons. 1. It doesn't track FSBO sales 2. It samples only 20% of all the MLS transactions 3. it doesn't take into consideration new construction.

In addition, in a tough mortgage climate such as the one we're in now, a greater percentage of pending sales will fail to close at all because of lack of financing.The Pending Home Sales Index still has its place, however -- it's a terrific look at the buy-side demand for homes.

The Pending Home Sales Index is an excellent way to view the overall markets strength. When the PHSI is moving up we know that there are more buyers in the market for homes and typically with more demand comes higher prices.

The Pending Home Sales Index experienced a large increase in June 2008 for the 2nd time in 3 months. This occured even as most economists were calling for a decline. This indicates an overall gain in the market for demand.

Since the PHSI doesn't indicate closed transactions we only know that demand is greater and that buyers are finding this a good time to move forward with a purchase. This tracking makes the Pending Home Sales Index a worthwhile source of market data since we know that greater demand will usually result in higher real estate prices in the future.