WASHINGTON (June 27, 2022) – Pending home sales rose in May, ending a six-month streak of declines, according to the National Association of Realtors®. Regionally, month-over-month results were mixed, with the Northeast and South seeing increases while the Midwest and West saw declines. Year-over-year contract activity declined in all four major regions.
The Pending Home Sales Index (PHSI),* www.nar.realtor/pending-home-sales, a forward-looking indicator of home sales based on contract signings, edged up 0.7% to 99.9 in May. Year over year, transactions fell 13.6%. An index of 100 equals the level of contractual activity in 2001.
“Despite the small gain in pending sales from the previous month, the housing market is clearly undergoing a transition,” said NAR chief economist Lawrence Yun. “Deal signings are down significantly from a year ago due to much higher mortgage rates.”
According to NAR, at the median price of a single-family home and with a 10% down payment, the monthly mortgage payment has increased by about $800 since the start of the year, as mortgage rates have increased by 2.5 percentage points. since January.
“Trying to balance the housing market by stifling demand through higher mortgage rates is detrimental to consumers and the economy,” Yun added. “The best way to balance the market is to increase supply, which also helps the wider economy.”
As the housing market remains imbalanced nationwide, with demand far outpacing supply, Yun noted that swings in home prices and affordability contributed to regional differences in pending sales in May. .
“The biggest drop in contract activity was seen in the West region, where homes are the most expensive,” he said. “It further points to the growing need to increase supply to rein in home price growth and improve the chances of home ownership for potential buyers.”
Regional Breakdown of May Pending Home Sales
The Northeast PHSI jumped 15.4% from last month to 86.7, down 11.9% from May 2021. The Midwest index fell 1.7% to 98 .6 in May, down 8.8% from a year ago.
PASS south rose 0.2% to 119.0 in May, down 13.8% from a year earlier. The West index contracted 5.0% in May to 81.6, down 19.8% from May 2021.
The National Association of Realtors® is America’s largest trade association, representing more than 1.5 million members involved in all aspects of the residential and commercial real estate industries.
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* The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not been completed, although the sale is usually finalized within one or two months of signing.
Pending contracts are good early indicators of upcoming sales closes. However, the time span between current contracts and completed sales is not the same for all home sales. Variations in process time between contract in progress and sale completed can be caused by issues such as buyer’s difficulty obtaining mortgage financing, home inspection issues, or valuation issues. .
The index is based on a sample that covers approximately 40% of data from multiple listing services each month. When building the index model, it was shown that the level of monthly sales contract activity corresponds to the level of closed existing home sales over the following two months.
An index of 100 equals the average level of contractual activity during the year 2001, which was the first year to be examined. Coincidentally, the volume of existing home sales in 2001 fell into the 5.0 to 5.5 million range, which is considered normal for today’s US population.
NOTE: Existing home sales for June will be released on July 20. The next pending home sales index will be on July 27. All broadcast times are at 10:00 a.m. EST.