The ongoing supply shortages that are propping up home prices in many metro areas caused pending home sales in May to slump for the third consecutive month, according to the National Association of Realtors (NAR).
The Pending Home Sales Index (PHSI) decreased 0.8% to 108.5 in May from a downwardly revised 109.4 in April. The index is now 1.7% below a year ago, which marks the second straight annual decline and the most recent since November and December of last year.
Lawrence Yun, chief economist for NAR, says the critically low inventory levels in much of the country somewhat sidetracked the housing market this spring.
“Monthly closings have recently been oscillating back and forth, but this third consecutive decline in contract activity implies a possible topping off in sales,” he says. “Buyer interest is solid, but there is just not enough supply to satisfy demand. Prospective buyers are being sidelined by both limited choices and home prices that are climbing too fast.”
According to Yun, the persistent housing shortages seen in several markets are most severe in the lower price ranges. That’s very apparent when looking at the percent change in closings in May compared with a year ago. Sales of homes under $100,000 last month were down 7.2% from last year and up only 2% for those between $100,000 and $250,000. In higher price brackets, sales expanded incrementally all the way up to massive increases of 26.0% for homes priced between $750,000 and $1 million and even more for those $1 million and up (29.1%).
Weaker financial and economic confidence could also be playing a role in the slowdown in contract activity. NAR’s quarterly Housing Opportunities and Market Experience survey, released earlier this week, found that fewer renters think it’s a good time to buy a home, and respondents overall are less confident about the economy and their financial situations than earlier this year.
“The lack of listings in the affordable price range are creating lopsided conditions in many areas where investors and repeat buyers with larger down payments are making up a bulk of the sales activity,” Yun says. “Meanwhile, many prospective first-time buyers can’t catch a break. Prices are going up, and there’s intense competition for the homes they’re financially able to purchase.”
Existing-home sales are forecast to be around 5.63 million this year – an increase of 3.2% from 2016 (5.45 million). The national median existing-home price this year is expected to increase around 5%. In 2016, existing sales increased 3.8%, and prices rose 5.1%.
“A much higher share of homeowners compared to a year ago think now is a good time to sell, but until they do, sales will likely stay flat and low inventory will keep price growth moving swiftly,” adds Yun.
The PHSI in the Northeast decreased 0.8% to 96.4 in May but remains 3.1% above a year ago. In the Midwest, the index was 104.5 in May (unchanged from April) and is 2.8% lower than May 2016.
Pending home sales in the South declined 1.2% to an index of 123.4 in May and are now 1.4% below last May. The index in the West subsided 1.3% in May to 98.6 and is now 4.5% below a year ago.