Pending home sales crept higher in May, ending a six-month streak of declines, according to the National Association of Realtors (NAR). Regionally, month-over-month results were mixed as the Northeast and South experienced increases while the Midwest and West posted decreases. Year-over-year contract activity slid in all four major regions.
The Pending Home Sales Index (PHSI), a forward-looking indicator of home sales based on contract signings, inched up 0.7 percent to 99.9 in May. Year-over-year, transactions dropped 13.6 percent. 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.”
According to NAR, at the median single-family home price and with a 10 percent 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.”
While the housing market remains unbalanced nationwide with demand far outpacing supply, Yun noted variations in home prices and affordability contributed to the regional differences in pending sales activity in May.
“The largest decline in contract activity was observed in the West region, where homes are the most expensive,” he said. “This further indicates the growing need to increase supply to tame home price growth and improve the chances of ownership for potential home buyers.”
May Pending Home Sales Regional Breakdown
The Northeast PHSI jumped 15.4 percent compared to last month to 86.7, down 11.9 percent from May 2021. The Midwest index retreated 1.7 percent to 98.6 in May, a decline of 8.8 percent from a year ago.
The South PHSI increased 0.2 percent to 119.0 in May, a 13.8 percent drop from the previous year. The West index contracted 5.0 percent in May to 81.6, down 19.8 percent from May 2021.