Pending Home Sales Slump for 3rd Month

Pending home sales disappointed for the third consecutive month, falling in all regions, the National Association of Realtors reported yesterday.

The Pending Home Sales Index, based on contract signings, decreased by 0.8 percent to 108.5 in May from a downwardly revised 109.4 in April, well short of expectations. The index fell by 1.7 percent below a year ago, marking the second straight annual decline.

Regionally, pending home sales declined by 1.2 percent in the South to 123.4 in May and fell by 1.4 percent from a year ago. Pending sales in the West fell by 1.3 percent in May to 98.6 and by 4.5 percent from a year ago. In the Northeast, pending sales decreased by 0.8 percent in May to 96.4, but was 3.1 percent higher than a year ago. In the Midwest the index remained unchanged at 104.5 in May but fell by 2.8 percent from a year ago.

NAR Chief Economist Lawrence Yun placed the blame squarely on inventory–or lack thereof.

“Monthly closings have recently been oscillating back and forth, but this third consecutive decline in contract activity implies a possible topping off in sales,” Yun said. “Buyer interest is solid, but there is just not enough supply to satisfy demand. Prospective buyers are being sidelined by both limited choices and home prices that are climbing too fast.”

Mark Vitner, senior economist with Wells Fargo Securities, Charlotte, N.C., noted the decline comes despite low mortgage rates and strong buyer traffic.

“While low inventories are likely the lead culprit in undermining home sales, seasonal distortions are still at play,” Vitner said. “Pending sales surged in February on unseasonably mild weather. The seasonally adjusted numbers have been out of whack ever since.”

Vitner said housing demand remains solid, as evidenced by the improving trend
for purchase plans. “But low inventories are apparently keeping many would-be buyers and sellers on the sidelines,” he said.

NAR said persistent housing shortages seen in several markets are most severe in the lower price ranges. Sales of homes under $100,000 last month in May fell by 7.2 percent from a year ago and rose by 2.0 percent for those between $100,000 and $250,000. In higher price brackets, sales expanded incrementally all the way up to increases of 26.0 percent for homes priced between $750,000 and $1 million and even more for those $1 million and up (29.1 percent).

“The lack of listings in the affordable price range are creating lopsided conditions in many areas where investors and repeat buyers with larger down payments are making up a bulk of the sales activity,” Yun said. “Meanwhile, many prospective first-time buyers can’t catch a break. Prices are going up and there’s intense competition for the homes they’re financially able to purchase.”