Pending Home Sales Shrink

(Courtesy National Association of Realtors)

Pending home sales shrunk 2.7% in May the National Association of Realtors reported Thursday.

Three U.S. regions posted monthly losses, while sales in the Northeast surged, NAR said in its monthly Pending Home Sales report. All four regions saw year-over-year declines in transactions.

NAR Chief Economist Lawrence Yun said the lack of housing inventory continues to prevent housing demand from being fully realized.

“It is encouraging that homebuilders have ramped up production, but the supply from new construction takes time and remains insufficient,” Yun said. “There should be more focus on boosting existing-home inventory with temporary tax incentive measures.”

The pending home sales index, a forward-looking indicator of home sales based on contract signings, dropped 2.7% to 76.5 in May. Pending transactions fell by 22.2% on a year-over-year basis.

Ksenia Potapov, Economist with First American, called the pending home sales data “A tale of two markets,” noting that existing-home sales are withering while new-home sales are blooming.

“The spring home-buying season has struggled to gain momentum. Mortgage rates remain high, reducing house-buying power and keeping existing homeowners rate-locked into their homes,” Potapov said. “As a result, the inventory of homes for sale, which typically increases throughout the spring and summer months, has remained near winter lows. While existing-home sales remain muted, multiple leading indicators on the new-home side, including new-home sales, new-home construction, and homebuilder sentiment have trended higher.”

Potapov said plenty of demand remains on the sidelines. “The labor market remains strong and potential home buyers are ready to jump in,” she said. “While limited inventory is likely to hold back sales activity, the housing market remains resilient.”