After rising in March, pending home sales continued to slide in May, with the Pending Home Sales Index (PHSI) posting its second consecutive month of declines to reach a record low, according to data released Thursday by the National Association of Realtors (NAR).
The PHSI fell 2.1% from April to a reading of 70.8 in May, which was down 6.6% on a yearly basis.
An index of 100 is equal to the level of contract activity in 2001. According to industry analysts, this is the lowest index reading recorded since NAR began collecting the data in 2001.
Experts attribute the drop in pending home sales to mortgage rate volatility.
“Pending sales are a forward-looking indicator of home sales based on contract signings, so two consecutive months of declining pending home sales suggest a negative outlook for sales activity,” Odeta Kushi, First American’s deputy chief economist, said in a statement. “However, these declines occurred when mortgage rates were rising in April and May. With rates moderating in June, purchase mortgage applications indicate that rate-sensitive buyers are hesitantly responding.”
Kushi added that more buyers may be enticed back into the market if mortgage rates continue to fall and inventory levels continue to rise. But she also feels that “a robust summer recovery is unlikely given ongoing affordability constraints.”
Pending home sales fell year over year in all four major regions, with the South posting the largest yearly decline at 10.4% to an index reading of 83.7. Month over month, pending home sales were down in the Northeast (-1.1%), the Midwest (-0.4%) and the South (-5.5%.) The West posted a 1.4% monthly increase to a reading of 56.7, which is down 2.1% compared to a year ago.
Looking ahead, NAR expects mortgage rates to remain above 6% in 2024 and 2025, despite any interest rate cuts the Federal Reserve may decide to implement. Additionally, the trade group predicts that the median sales price will jump to an all-time high of $405,300 in 2024, compared to $389,900 in 2023.
With this in mind, NAR is forecasting a total of 4.26 million existing homes to be sold in 2024, up from 4.09 million in 2023, and for housing starts to fall to 1.382 million, down from 1.413 million in 2023.
“The market is at an interesting point with rising inventory and lower demand,” NAR chief economist Lawrence Yun said in a statement. “Supply and demand movements suggest easing home price appreciation in upcoming months. Inevitably, more inventory in a job-creating economy will lead to greater home buying, especially when mortgage rates descend.
”The first half of the year did not meet expectations regarding home sales but exceeded expectations related to home prices. In the second half of 2024, look for moderately lower mortgage rates, higher home sales and stabilizing home prices.”
