Contracts to buy previously owned homes in the United States saw a sharp rise in May, with the National Association of Realtors’ (NAR) index of pending home sales hitting its highest level for the month of May since 2005 and blowing by economists’ expectations.
The index rose by 8 percent in May to 114.7, up from 106.2 in April, according to NAR, with a reading of 100 equal to the level of contract activity in 2001. Economists polled by Reuters predicted that the pending home sales measure would drop by 0.8 percent.
“May’s strong increase in transactions—following April’s decline, as well as a sudden erosion in home affordability—was indeed a surprise,” said Lawrence Yun, NAR’s chief economist. “The housing market is attracting buyers due to the decline in mortgage rates, which fell below 3 percent, and from an uptick in listings.”
Pending home sales were up 13.1 percent in May compared to one year ago, after surging by a record 51.7 percent over the year in April, amid a low base effect from last year when pending sales plummeted due to the pandemic.
The index is considered a forward-looking indicator of the health of the housing market because the contracts typically convert into closed sales one to two months later.
Yun said that, despite housing market headwinds such as the pandemic, record-high prices, and all-time low inventory, buyers are lining up to purchase homes.
“While these hurdles have contributed to pricing out some would-be buyers, the record-high aggregate wealth in the country from the elevated stock market and rising home prices are evidently providing funds for home purchases,” Yun said in the report by NAR. “More market listings will appear in the second half of 2021, in part from the winding down of the federal mortgage forbearance program and from more home building.”
He predicted that an increased supply of homes will cause price growth to slow, but added that he believes “a broad and prolonged decline in prices is unlikely.”
Last week, the Commerce Department said in a report (pdf) that sales of new single-family homes in the United States fell for the second straight month in May as the median price of a new home sold that month jumped to $374,400, up 18.1 percent from a year ago.
NAR reported last week that the median sales price for an existing home topped $350,000 in May, a record high and likely obstacle for many would-be home buyers.
Existing-home sales fell for a fourth straight month in May, according to NAR.