By Kerry Smith
NAR says May’s increase in pending home sales ended a six-month skid of declines, but despite the gain, “the housing market is clearly undergoing a transition.”
WASHINGTON – Pending home sales crept higher in May, ending a six-month streak of declines, according to the National Association of Realtors® (NAR). Regionally, month-over-month results were mixed – the Northeast and South experienced increases, while the Midwest and West posted decreases. However, year-over-year contract activity slid in all four regions.
The Pending Home Sales Index (PHSI) – a forward-looking indicator of home sales based on contract signings – inched up 0.7% to 99.9 in May. Year-over-year, transactions dropped 13.6%. An index of 100 equals the level of contract activity in 2001.
“Despite the small gain in pending sales from the prior month, the housing market is clearly undergoing a transition,” says NAR Chief Economist Lawrence Yun. “Contract signings are down sizably from a year ago because of much higher mortgage rates.”
According to NAR, a monthly mortgage payment has increased about $800 – based on a median single-family home price with a 10% down-payment – since January because mortgage rates have climbed 2.5 percentage points.
“Trying to balance the housing market by choking off demand via higher mortgage rates is damaging to consumers and the economy,” Yun says. “The better way to balance the market is through increased supply, which also helps the broader economy.”
While the housing market remains unbalanced nationwide with demand far outpacing supply, Yun says variations in home prices and affordability contributed to regional differences in May pending sales.
“The largest decline in contract activity was observed in the West region, where homes are the most expensive,” Yun says. “This further indicates the growing need to increase supply to tame home price growth and improve the chances of ownership for potential homebuyers.”
May pending home sales regional breakdown: The Northeast PHSI jumped 15.4% compared to last month at 86.7, though its down 11.9% from May 2021. The Midwest index retreated 1.7% to 98.6 in May, a year-to-year decline of 8.8%.
The South PHSI increased 0.2% to 119.0 in May, though with a 13.8% drop from the previous year. The West index contracted 5.0% in May to 81.6, down 19.8% from May 2021.
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