May witnessed a decline in US pending home sales, marking the lowest level of this year due to the impact of high mortgage rates and limited housing inventory. The National Association of Realtors released data on Thursday, revealing a 2.7% drop in their index of contract signings to purchase pre-owned homes compared to April. This decline exceeded the expectations of economists, with US home purchases down nearly 21% from the previous year.
The resale housing market continues to face challenges as steep borrowing costs and low supply hinder sales. Homeowners who have secured low mortgage rates in the past are hesitant to move, contributing to the shortage of available properties. This scarcity is driving many buyers towards the new-home market, keeping existing-home sales subdued.
Breaking it down regionally, the West experienced a 6.1% decrease in sales from April and a steep 26.6% decline compared to May 2022. Meanwhile, the Northeast saw a 12.9% increase from the past month, though it still recorded a 21.9% drop from May 2022. In the Midwest, sales dropped by 5.3% within a month and were down 23.5% from the previous year. The South witnessed a 4.4% drop in a month and a 19.6% decline from the prior year.
Lawrence Yun, NAR’s chief economist, highlighted the ongoing issue of housing inventory shortage, stating, “The lack of housing inventory continues to prevent housing demand from being fully realized. It is encouraging that homebuilders have ramped up production, but the supply from new construction takes time and remains insufficient.”
This decline marks the third consecutive month of decreasing pending home sales, following a downward revision to April’s previously stable reading. The pending home sales report is often considered a leading indicator of existing-home sales since homes typically go under contract a month or two before they are sold.
This report includes additional contributions from Jonathan Lansner of the Southern California News Group.
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