June 27, 2018 – Pending home sales decreased modestly in May and have now fallen on an annualized basis for the fifth straight month, according to the National Association of Realtors® (NAR). A larger drop in contract activity in the South offset gains in the Northeast, Midwest and West.
The Pending Home Sales Index (PHSI) – a forward-looking indicator based on contract signings – decreased 0.5 percent to 105.9 in May from 106.4 in April.
Lawrence Yun, NAR chief economist, says this year’s spring buying season will go down as one of unmet expectations.
“Pending home sales underperformed once again in May, declining for the second straight month and coming in at the second lowest level over the past year,” Yun says. “Realtors in most of the country continue to describe their markets as highly competitive and fast moving – but without enough new and existing inventory for sale, activity has essentially stalled.”
The problem, Yun says, is largely a supply issue and not due to a lack of buyer demand.
If the recent activity slowdown was due to waningbuyer interest, price growth would start slowing, inventory would begin rising and homes would stay on the market longer, according to Yun. Instead, the underlying closing data in May showed that home price gains are still outpacing income growth, inventory declined on an annual basis for the 36th consecutive month, and listings typically went under contract in just over three weeks.
“With the cost of buying a home getting more expensive, it’s clear the summer months will be a true test for the housing market,” says Yun. “One encouraging sign has been the increase in new home construction to a 10-year high. Several would-be buyers this spring were kept out of the market because of supply and affordability constraints. The healthy economy and job market should keep many of them actively looking to buy, and any rise in inventory would certainly help them find a home.”