After steadily increasing for three months, pending home sales in the United States let up in May with the first year on year fall for almost two years with all four major regions seeing a decline.
The Pending Home Sales Index, a forward looking indicator based on contract signings from the National Association of Realtors fell by 3.7% to 110.8 in May from a downwardly revised 115 in April and is now 0.2% lower than May 2015.
But even with last month’s decline, the index reading is still the third highest in the past year, but declined year on year for the first time since August 2014.
According to Lawrence Yun, NAR chief economist, pending sales slumped in May across most of the country. ‘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,’ he said.
‘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,’ he added.
Despite mortgage rates hovering around three year lows for most of the year, Yun explained that scant supply and swiftly rising home prices which surpassed their all-time high last month are creating an availability and affordability crunch that’s preventing what should be a more robust pace of sales.
‘Total housing inventory at the end of each month has remarkably decreased year on year now for an entire year. 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,’ Yun pointed out.
Looking ahead to the second half of the year, Yun believes that the fallout from the UK’s decision to leave the European Union breeds both immediate opportunity as well as potential headwinds for the US 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 said.
‘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,’ he added.
In spite of last month’s step back in contract signings, existing home sales this year are still expected to be around 5.44 million, a 3.7% boost from 2015. After accelerating to 6.8% a year ago, national median existing home price growth is forecast to slightly moderate to between 4% and 5%.
A regional breakdown of the figures shows that the PHSI in the Northeast dropped 5.3% to 93 in May, and is now unchanged from a year ago. In the Midwest the index slipped 4.2% to 108 in May, and is now 1.8% below May 2015.
Pending home sales in the South declined 3.1% to an index of 126.6 in May but are still 0.6% higher than last May. The index in the West decreased 3.4% in May to 102.6, and is now 0.1% below a year ago.
