Huge comeback for pending home sales

The National Association of Realtors (NAR) reported a record comeback for May pending home sales as many COVID-19 restrictions were lessened last month.

The latest Pending Home Sales Index (PHSI), jumped 44.3% to 99.6 in May. This is the highest month-over-month gain in the index since the NAR since the series initiated in January 2001. The PHSI is a forward-looking indicator of contract signings.

Year-over-year, contract signings fell 5.1%, however. An index of 100 is equal to the level of contract activity in 2001.

Last month's PHSI declined 21.8% to 69 as year-over-year contract signings saw a steep fall of 33.8%. 

“This has been a spectacular recovery for contract signings, and goes to show the resiliency of American consumers and their evergreen desire for homeownership,” said Lawrence Yun, NAR’s chief economist. “This bounce back also speaks to how the housing sector could lead the way for a broader economic recovery.”

Each of the four regional indices rose on a month-over-month basis after falling in April 2020. 

Here’s how the PHSI breaks down in the four major regions:

• In the Northeast, the PHSI grew 44.4% to 61.5 in May but is down 32.2% from a year ago.
• The Midwest PHSI rose 37.2% to 98.8 in May but is down 1.4% from May 2019.
• In the South, the PHSI increased 43.3% to 125.5 last month and is up 1.9% from a year ago.
• The West realized a gain of 56.2% to 89.2 but is down 2.5% from last year.

“More listings are continuously appearing as the economy reopens, helping with inventory choices,” Yun said. “Still, more home construction is needed to counter the persistent underproduction of homes over the past decade.”

Active listings were up more than 10% in some major metro markets in May compared to the previous month, including Urban Honolulu, Hawaii; San Francisco, Calif.; San Jose, Calif.; Denver, Colo.; and Colorado Springs, Colo.

“The outlook has significantly improved, as new home sales are expected to be higher this year than last, and annual existing-home sales are now projected to be down by less than 10% – even after missing the spring buying season due to the pandemic lockdown,” Yun said.

The NAR said that it now expects existing-home sales to reach 4.93 million units in 2020 and new home sales to hit 690,000. 

“All figures light up in 2021 with positive GDP, employment, housing starts, and home sales.” Yun said, noting that that in 2021, sales are forecast to rise to 5.35 million units for existing homes and 800,000 for new homes.