Pending home sales decreased modestly in May, with the National Association of Realtors Pending Home Sales Index, falling 0.5% to 105.9 in May from 106.4 in April, down 2.2% on an annual basis. It was the fifth straight month of declines.
A larger decline in contract activity in the South offset gains in the Northeast, Midwest and West. The PHSI in the Northeast increased 2.0% to 92.4 in May, but is still 4.8% below a year ago. In the Midwest the index rose 2.9% to 101.4 in May, but is still 2.5% lower than May 2017. Pending home sales in the South declined 3.5% to an index of 122.9 in May (unchanged from a year ago). The index in the West inched forward 0.6% in May to 94.7, but is 4.1% below a year ago.
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,” he said. “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 lackluster spring, according to Yun, has primarily been a supply issue, and not one of weakening demand. If the recent slowdown in activity were because buyer interest is waning, price growth would start slowing, inventory would begin rising and homes would stay on the market longer. 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. One encouraging sign has been the increase in new home construction to a 10-year high,” added Yun. “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.”
Yun now forecasts for existing-home sales in 2018 to decrease 0.4% to 5.49 million – down from 5.51 million in 2017. The national median existing-home price is expected to increase around 5.0%. In 2017, existing sales increased 1.1% and prices rose 5.7%.
