The National Association of Realtors' Pending Home Sales Index rose 1.1% to 105.4 in May, up from 104.3 in April, but year-over-year contract signings declined 0.7%, marking the 17th straight month of annual decreases, the group reported Thursday.
Lawrence Yun, NAR chief economist, said lower-than-usual mortgage rates have led to the increase in pending sales for May. “Rates of 4% and, in some cases even lower, create extremely attractive conditions for consumers. Buyers, for good reason, are anxious to purchase and lock in at these rates.”
Yun said consumer confidence about home buying has risen, and he expects more activity in the coming months.
“The Federal Reserve may cut interest rates one more time this year, but there is no guarantee mortgage rates will fall from these already historically low points,” he said. “Job creation and a rise in inventory will nonetheless drive more buyers to enter the market.”
Citing the hottest housing markets from data at realtor.com®, Yun said the year-over-year increases could be a sign of a rise in inventory. Rochester, N.Y., Fort Wayne, Ind., Lafayette-West Lafayette, Ind., Boston-Cambridge-Newton, Mass., and Midland, Texas, were the hottest housing markets in May.
Yun said that while contract signings and mortgage applications have increased, there is still a great need for more inventory. “Home builders have not ramped up construction to the extent that is needed,” he said. “Homes are selling swiftly, and more construction will help keep home prices manageable and thereby allow more middle-class families to attain ownership opportunities.”
The PHSI in the Northeast rose 3.5% to 92.0 in May and is now 0.5% below a year ago. In the Midwest, the index grew 3.6% to 100.3 in May, 1.2% lower than May 2018. Pending home sales in the South inched up 0.1% to an index of 124.1 in May, which is 0.7% higher than last May. The index in the West dropped 1.8% in May to 91.8 and decreased 3.1% below a year ago.
Over at the Mortgage Bankers Association, Joel Kan, AVP of economic and industry forecasting, took a dimmer view. “Pending home sales rose slightly in May on a seasonally adjusted basis, driven by increases in the Northeast and Midwest," said Kan. "The unadjusted data, however, showed an overall decrease, as well as declines in every region compared to May 2018.
"MBA’s purchase applications data are still showing year-over-year increases, which is possibly a sign that despite lower mortgage rates, tight inventory and affordability challenges are a major reason why rising mortgage applications are not translating to larger gains in contract signings.”
