According to the National Association of Realtors, U.S. pending home sales decreased modestly in May 2018, and have now fallen on an annualized basis for the fifth straight month. A larger decline in contract activity in the South offset gains in the Northeast, Midwest and West.
The Pending Home Sales Index, a forward-looking indicator based on contract signings, decreased 0.5 percent to 105.9 in May from 106.4 in April. With last month's decrease, the index is down on an annual basis (2.2 percent) for the fourth straight month.
Lawrence Yun, NAR chief economist, says this year's spring buying season will go down as one of unmet expectations. "Pending home sales underperformed once again in May, declining for the second straight month and coming in at the second lowest level over the past year," he said. "Realtors in most of the country continue to describe their markets as highly competitive and fast moving, but without enough new and existing inventory for sale, activity has essentially stalled."
The lackluster spring, according to Yun, has primarily been a supply issue, and not one of weakening demand. If the recent slowdown in activity were because buyer interest is waning, price growth would start slowing, inventory would begin rising and homes would stay on the market longer. Instead, the underlying closing data in May showed that home price gains are still outpacing income growth, inventory declined on an annual basis for the 36th consecutive month, and listings typically went under contract in just over three weeks.
"With the cost of buying a home getting more expensive, it's clear the summer months will be a true test for the housing market. One encouraging sign has been the increase in new home construction to a 10-year high," added Yun. "Several would-be buyers this spring were kept out of the market because of supply and affordability constraints. The healthy economy and job market should keep many of them actively looking to buy, and any rise in inventory would certainly help them find a home."
Yun now forecasts for existing-home sales in 2018 to decrease 0.4 percent to 5.49 million - down from 5.51 million in 2017. The national median existing-home price is expected to increase around 5.0 percent. In 2017, existing sales increased 1.1 percent and prices rose 5.7 percent.
The PHSI in the Northeast increased 2.0 percent to 92.4 in May, but is still 4.8 percent below a year ago. In the Midwest the index rose 2.9 percent to 101.4 in May, but is still 2.5 percent lower than May 2017.
Pending home sales in the South declined 3.5 percent to an index of 122.9 in May (unchanged from a year ago). The index in the West inched forward 0.6 percent in May to 94.7, but is 4.1 percent below a year ago.
Ruben Gonzalez, chief economist Keller Williams also commented, "We expect home prices will continue to rise quickly this summer. Mortgage rates have leveled off at the moment, and we are continuing to see year-over-year declines in inventory levels. As supply continues to be the primary restrictive factor on sales, we expect demand to continue to drive prices up in the range of 6 to 8 percent in the next couple of months."