Pending home sales show signs of strength in May

Pending home sales gained significant strength in May, according to the National Association of Realtors.

Sales in May May reached the highest level for the month since May 2005 with all four U.S. regions demonstrating month-over-month growth.

The latest Pending Home Sales Index (PHSI) increased 8% to 114.7 in May while year-over-year signings jumped 13.1%. An index of 100 is equal to the level of activity in 2001. The PHSI is a forward-looking indicator of home sales based on contract signings.

“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%, and from an uptick in listings.”

Although there has been a series of obstacles over the last year, including an unprecedented pandemic, record-high prices and all-time low inventory, buyers are still lining up at a feverish pace, according to Yun.

“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. “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.”

Yun also notes that price growth should moderate as the housing supply increases but a broad and prolonged decline is unlikely.

“However, if a reduction occurs in some markets, homebuyers will view the lower home price as a second-chance opportunity to get into the market after being outbid in previous multiple-bid market conditions,” Yun said.

“Hottest Housing Markets” data from Realtor.com revealed that out of the largest 40 metros, the most improved metros over the past year, as of June 29, were Tampa-St. Petersburg-Clearwater, Fla.; Detroit-Warren-Dearborn, Mich.; Nashville-Davidson-Murfreesboro-Franklin, Tenn.; Riverside-San Bernardino-Ontario, Calif.; and Jacksonville, Fla.

Here’s how pending home sales break down by region:

• The Northeast PHSI increased 15.5% to 98.5 in May, a 54.6% climb from a year ago. 
• In the Midwest, the index grew 6.7% to 107.7 last month, up 7.8% from May 2020.
• Pending home sales transactions in the South rose 4.9% to an index of 135.5 in May, up 6.1% from May 2020.
• The index in the West increased 10.9% in May to 102.0, up 12.5% from a year prior.