Pending Home Sales Drop Again in May

(Illustration courtesy of the National Association of Realtors)

Pending home sales slipped 2.1% in May, the National Association of Realtors reported Thursday.

The dip follows a 7.7% drop in April.

The Midwest and South posted monthly losses in transactions while the Northeast and West recorded gains. Year-over-year, all U.S. regions registered reductions.

The Pending Home Sales Index–a forward-looking indicator of home sales based on contract signings–decreased to 70.8 in May. Year over year, pending transactions were down 6.6%. (An index of 100 is equal to the level of contract activity in 2001.)

“The market is at an interesting point with rising inventory and lower demand,” NAR Chief Economist Lawrence Yun said. “Supply and demand movements suggest easing home price appreciation in upcoming months. Inevitably, more inventory in a job-creating economy will lead to greater home buying, especially when mortgage rates descend.”

First American Deputy Chief Economist Odeta Kushi noted pending sales are a forward-looking indicator of home sales based on contract signings, so two consecutive months of declining pending home sales suggest a negative outlook for sales activity. “However, these declines occurred when mortgage rates were rising in April and May,” she said. “With rates moderating in June, purchase mortgage applications indicate that rate-sensitive buyers are hesitantly responding.”

Kushi said if mortgage rates continue to dip as inventory increases, some buyers may be enticed off the sidelines to boost the summer home-buying season. “Nevertheless, a robust summer recovery is unlikely given ongoing affordability constraints,” she added.

NAR said it anticipates the median existing-home price will increase to a record annual high of $405,300 in 2024 and to $412,000 in 2025 from $389,800 in 2023. The association forecasts the median new home price will increase from $428,600 in 2023 to $434,100 this year and $441,200 next year.

“The first half of the year did not meet expectations regarding home sales but exceeded expectations related to home prices,” Yun said. “In the second half of 2024, look for moderately lower mortgage rates, higher home sales and stabilizing home prices.”