Pending home sales, the National Association of Realtors' chief barometer of future existing homes sales, dropped 3.7% to a Pending Home Sales Index reading of 110.8, with the benchmark of 100 set at the average level of contract acitivity in 2001. That was down from 115 in April and slightly below (-0.2%) the index reading of May, 2015, which was 111, the first year-to-year decline since August, 2014.

Contract activity slid across 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,” said Lawrence Yun, NAR chief economist. “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.”

The NAR's building in Washington.
The NAR's building in Washington.

The Realtor group blamed the slowdown on "scant supply and swiftly rising home prices."

“Total housing inventory at the end of each month has remarkably decreased year-over-year now for an entire year,” said 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 PHSI in the Northeast dropped 5.3% to 93.0 in May, and is now unchanged from a year ago. In the Midwest the index slipped 4.2% to 108.0 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.

Looking ahead to the second half of the year, Yun said fallout from the U.K.’s decision to leave the European Union breeds both immediate opportunity as well as potential headwinds for the U.S. 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.”

The Realtors still expect existing-home sales this year are still expected to be around 5.44 million, a 3.7% increase 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%.