The Pending Home Sales Index (PHSI) of the National Association of Realtors rose 0.7% in February to 109.3. This index is based on contracts signed in February with actual sales scheduled one or two months ahead. The small improvement during February is being viewed as a sign of stabilization of the housing market. Bad weather in February is cited as a reason for only a small increase in the PHSI. However, there are other factors playing a major role that are being overlooked in the optimistic assessment of this report. Reports from the housing market are rife with cancellations of home purchases which are not reflected in the home sales and inventories data. There is a strong likelihood of cancellations in coming months given the tighter lending standards in place in recent weeks. In addition, availability of sub-prime loans has diminished significantly in recent months. Our calculations show that in the last two years, the correlation between the change in sales of existing homes and the change in the PHSI advanced two months is only 46.0%. Therefore, we are skeptical about the improvement in the PHSI in February. The PHSI fell 4.5% in January, which suggests that sales of existing homes probably fell in March. The tally for sales of existing homes in March will be published on April 25.