Pending home sales edge ahead

Pending home sales saw a slight increase in May, the National Association of Realtors reported this morning.

The Pending Home Sales Index (PHSI) edged ahead 0.7% to a reading of 99.9.

This report snapped six straight months of PHSI declines. The index is a forward-looking indicator of home sales based on contract signings.

But year-over-year, transactions dropped 13.6%. An index of 100 is equal to the level of contract activity in 2001.

“Despite the small gain in pending sales from the prior month, the housing market is clearly undergoing a transition,” said NAR Chief Economist Lawrence Yun. “Contract signings are down sizably from a year ago because of much higher mortgage rates.”

Sales of new single-family homes, reported last week, jumped 10.7% to a seasonally adjusted rate of 696,000 from the revised April rate of 629,000.

Economists point to a rush from home buyers looking to make a purchase prior to the Federal Reserve raising interest rates this month. 

Data from the NAR shows that at the median single-family home price, and with a 10% down payment, the monthly mortgage payment has increased by about $800 since the beginning of the year as mortgage rates have climbed by 2.5 percentage points since January.

“Trying to balance the housing market by choking off demand via higher mortgage rates is damaging to consumers and the economy,” Yun added. “The better way to balance the market is through increased supply, which also helps the broader economy.”

The largest decline in contract activity occurred in the West region, where homes are the most expensive. 

“This further indicates the growing need to increase supply to tame home price growth and improve the chances of ownership for potential home buyers,” Yun noted.

Here’s how Pending Home Sales break down by region:

• The Northeast PHSI jumped 15.4% compared to last month to 86.7, down 11.9% from May 2021. 
• The Midwest index retreated 1.7% to 98.6 in May, a decline of 8.8% from a year ago.
• The South PHSI increased 0.2% to 119.0 in May, a 13.8% drop from the previous year. 
• The West index fell 5% in May to 81.6, down 19.8% from May 2021.