Pending home sales (contracts signed) took a “skid” in May, according to the National Association of Realtors (NAR). This hiccup follows three consecutive months of increases, and nearly two years of year-over-year increases. All four regions saw a dip in contract activity as the Pending Home Sales Index (PHSI) slid 3.7 percent.
NAR is quick to point out that despite last month’s dip, the index remains the third highest reading in the past year, declining year-over-year for the first time since August 2014.
Dr. Lawrence Yun, NAR chief economist said, “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.”
“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,” Dr. Yun observed.
The challenge now is supply, not demand
He notes that home prices are at an all time high, inventory levels remain low, which he says is 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-over-year now for an entire year,” adds Yun. “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.”
The Northeast took the biggest hit
The PHSI fell 5.3 percent in the Northeast, unchanged from a year ago. The Midwest saw a 4.2 percent drop, falling 1.8 percent below May 2015.
Contract activity slid 3.1 percent in May, but are actually 0.6 percent higher than last May. In the West, the PHSI fell 3.4 percent, marking a 0.1 percent drop from May 2015.
Despite this “skid,” existing home sales are still expected to rise this year, which NAR projects will hit 5.44 million (3.7 percent higher than 2015).
The pace of housing prices is projected to moderate to between 4.0 and 5.0 percent this year compared to 6.8 percent last year.
Contract activity for May took a slight hit, but it’s no cause for alarm.