Strong increase comes after April’s decline
Pending home sales hit their highest reading for the month of May since 2005 – an unexpected leap after a dismal April, according to the National Association of Realtors.
NAR’s Pending Home Sales Index (PHSI), a forward-looking indicator of home sales based on contract signings, jumped 8% to 114.7 month over month in May and was up 13.1% year over year.
“May’s strong increase in transactions – following April’s decline, as well as a sudden erosion in home affordability – was indeed a surprise,” said NAR chief economist Lawrence Yun. “The housing market is attracting buyers due to the decline in mortgage rates, which fell below 3%, and from an uptick in listings.”
All four US regions reported gains in pending home sales contract transactions. The Northeast PHSI increased 15.5% to 98.5 in May, up 54.6% from a year ago. In the Midwest, the index grew 6.7% to 107.7 last month, up 7.8% from May 2020. Sales in the South rose 4.9% to an index of 135.5 in May, up 6.1% from May 2020. The index in the West increased 10.9% in May to 102.0, up 12.5% from a year prior.
Despite headwinds such as record-high prices and tight inventory, buyers’ appetite for housing remains strong, according to Yun.
“While these hurdles have contributed to pricing out some would-be buyers, the record-high aggregate wealth in the country from the elevated stock market and rising home prices are evidently providing funds for home purchases,” he said. “More market listings will appear in the second half of 2021, in part from the winding down of the federal mortgage forbearance program and from more home building.”
“Home price growth will steadily moderate with increased supply, but a broad and prolonged decline in prices is unlikely,” Yun continued. “However, if a reduction occurs in some markets, homebuyers will view the lower home price as a second-chance opportunity to get into the market after being outbid in previous multiple-bid market conditions.”
