Pending home sales flopped in May as inventory continued to drag on the housing market, down 0.8 percent in the National Association of REALTORS® (NAR) Pending Home Sales Index (PHSI). The PHSI posted 108.5 in May, down from 109.4 in April. The Index is based on contract signings.
“Monthly closings have recently been oscillating back and forth, but this third consecutive decline in contract activity implies a possible topping off in sales,” says Lawrence Yun, chief economist at NAR. “Buyer interest is solid, but there is just not enough supply to satisfy demand. Prospective buyers are being sidelined by both limited choices and home prices that are climbing too fast.”
The Midwest was the only region to see no change in the Index in May, at 104.5. The West saw a 1.3 percent decrease in the Index to 98.6, while the South saw a 1.2 percent decrease to 123.4, and the Northeast, a 0.8 percent decrease to 96.4.
The situation is dire for the most affordable homes, according to Yun, with sales of homes between $100,000 and $250,000 up just 2 percent and sales of homes under $100,000 down 7.2 percent year-over-year.
“The lack of listings in the affordable price range are creating lopsided conditions in many areas where investors and repeat buyers with larger down payments are making up a bulk of the sales activity,” Yun says. “Meanwhile, many prospective first-time buyers can’t catch a break. Prices are going up and there’s intense competition for the homes they’re financially able to purchase.
“A much higher share of homeowners compared to a year ago think now is a good time to sell, but until they do, sales will likely stay flat and low inventory will keep price growth moving swiftly,” says Yun.
Joseph Kirchner, Ph.D., realtor.com® senior economist, said that while the reported decline in contract signings is the third monthly slip in a row and could be evidence of a downward trend, he added there is no reason to panic.
“For one, the pending home sales index has been relatively stagnant since 2015, and has dropped to this level during that time,” says Kirchner. “Plus the numbers aren’t a perfect gauge of what’s actually happening in the market. Sales can continue to grow while pending sales numbers are going down if the time between signing a contract and officially closing the sale shortens.
“However, [these] numbers are yet another indication that the lack of homes for sale is having a major, negative impact on the market,” he continues. “The future direction will be brighter if and when we see a significant uptick in inventory, but that unfortunately doesn’t seem to be right around the corner.”
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