NAR: Pending Home Sales Fell 3.7% In May

Pending home sales saw a steep decrease in May, sliding 3.7% compared with April to a score of 110.8 on the National Association of Realtors’ (NAR) Pending Home Sales Index.

The index, which is based on contract signings, shows that pending home sales dropped 5.3% in the Northeast, 4.2% in the Midwest, 3.4% in the West and 3.1% in the South.

It was the first time since August 2014 that pending home sales fell on a year-over-year basis. Prior to May, pending home sales had increased month over month and year over year for three consecutive months.

“With demand holding firm this spring and homes selling even faster than a year ago, the notable increase in closings in recent months took a dent out of what was available for sale in May and ultimately dragged down contract activity,” explains Lawrence Yun, chief economist for NAR, in a statement. “Realtors are acknowledging with increasing frequency lately that buyers continue to be frustrated by the tense competition and lack of affordable homes for sale in their market.”

The lack of available inventory is such a huge problem that it almost doesn’t matter that mortgage rates are at historic lows.

“Total housing inventory at the end of each month has remarkably decreased year over year now for an entire year,” Yun says. “There are simply not enough homes coming onto the market to catch up with demand and to keep prices more in line with inflation and wage growth.”

Looking ahead to the second half of the year, Yun says the fallout from the U.K.’s decision to leave the European Union breeds both immediate opportunity, as well as potential headwinds, for the U.S. housing market.

“In the short term, volatility in the financial markets could very likely lead to even lower mortgage rates and increased demand from foreign buyers looking for a safer place to invest their cash,” he says. “On the other hand, any prolonged market angst and further economic uncertainty overseas could negatively impact our economy and end up tempering the overall appetite for home buying.”

Despite the decrease in contract signings in May, NAR is forecasting that existing-home sales this year will reach 5.44 million, an increase of 3.7% compared with 2015. Last year, home prices increased about 6.8%, nationwide. This year, they are forecast to slightly moderate to between 4% and 5%, NAR says.


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