While nationwide housing inventory remains slim, pending home sales slumped 2.7% in May from the previous month, according to a new study from the National Association of Realtors. Three U.S. regions posted monthly losses, while sales in the Northeast surged. All four regions saw year-over-year declines in transactions.
“Despite sluggish pending contract signings, the housing market is resilient with approximately three offers for each listing,” said NAR Chief Economist Lawrence Yun. “The lack of housing inventory continues to prevent housing demand from being fully realized.”
- Pending home sales dropped in May, down 2.7% from April.
- Month over month, contract signings decreased in three U.S. regions but jumped in the Northeast.
- Pending home sales fell in all four regions compared to one year ago.
The Pending Home Sales Index (PHSI)—a forward-looking indicator of home sales based on contract signings—dropped 2.7% to 76.5 in May. Year-over-year, pending transactions fell by 22.2%. An index of 100 is equal to the level of contract activity in 2001.
“It is encouraging that homebuilders have ramped up production, but the supply from new construction takes time and remains insufficient,” Yun continued. “There should be more focus on boosting existing-home inventory with temporary tax incentive measures.”
“Pending home sales data slipped in May, dipping 2.7% to 76.5. The drop is notable because new home sales in the same period surged higher (+12.2%) and portends challenges for existing home sales growth," said Realtor.com Chief Economist Danielle Hale. "Contract signings continue to register above the fourth quarter’s low levels but are treading water rather than gaining ground, falling behind the year ago pace by 22.2%. Pending home sales or contract signings are the first major step in a home sale transaction, so today’s data reading highlights the lack of opportunity that potential homebuyers confront as many homeowners continue to sit on the sidelines, enjoying their homes and below-market mortgage rates.
"Pending home sales slipped in all regions except the Northeast, which saw a jump of 12.9%, reversing last month’s pattern," Hale continued. "Compared to one year ago, pending home sales have lost the most ground in the West (-26.6%), where home prices and broader economic activity have recently been weakest. In all other regions, pending home sales trailed the year-ago pace by 20-24%."
Pending Home Sales Regional Breakdown
The Northeast PHSI climbed 12.9% from last month to 66.7, a decrease of 21.9% from May 2022. The Midwest index dropped 5.3% to 74.4 in May, down 23.5% from one year ago. Meanwhile, the South PHSI decreased 4.4% to 94.4 in May, reducing 19.6% from the prior year. The West index lessened 6.1% in May to 58.4, falling 26.6% from May 2022.
"June Realtor.com data shows that in the last week of the month, the number of homes for sale slipped below year ago levels as year-to-date new listings lag more than 20% behind last year’s pace," said Hale. "Recent data also show that as many as 1 in 7 homeowners currently choosing not to sell cite their low mortgage rate as the reason. We expect inventory to continue to remain low, which is a reason we anticipate that existing home sales will largely hold at current levels throughout the rest of 2023. But new home sales data signal that buyers are interested, especially for homes at affordable price points, which bodes well for existing homeowners contemplating a sale.”
To read the full report, including more data and methodology, click here.