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Pending home sales inched slightly higher in May, ending six straight months of declines, according to new data.
Pending sales crept up 0.7 percent to 99.9 during May, but were down 13.6 percent from their May 2021 levels, according to data released Monday by the National Association of Realtors.
The slight increase should not take away from the clear evidence that the housing market is undergoing a transition spurred by high prices and high mortgage rates, NAR Chief Economist Lawrence Yun said.
“Despite the small gain in pending sales from the prior month, the housing market is clearly undergoing a transition,” Yun said in a statement. “Contract signings are down sizably from a year ago because of much higher mortgage rates.”
According to NAR data, at the median single family home price with a 10 percent down payment, monthly mortgage payments have increased by about $800 since the beginning of 2022 while mortgage rates have climbed 2.5 percent since January.
“Trying to balance the housing market by choking off demand via higher mortgage rates is damaging to consumers and the economy,” Yun said. “The better way to balance the market is through increased supply, which also helps the broader economy.”
Part of the slight increase in pending sales, which represent homes that are in contract, can be attributed to more sellers dropping their prices after their homes linger longer on listing services, some experts said.
“With inflation taking a bigger bite out of consumers’ paychecks each month and the Federal Reserve fully engaged in cooling the heat on prices, Americans’ ability to borrow is being sharply curtailed,” George Ratiu, senior economist at Realtor.com, said in a statement. “The result is softening housing demand, which comes at the same time as many homeowners are embracing the new normal and listing their homes for sale. In the process, housing markets are experiencing a familiar shift – With rising inventory and slowing sales, a growing share of homes lingers longer on listing portals, leading to price reductions. The return of these historical patterns is a welcome development for home shoppers who have been waiting for the window of buying opportunities to open wider.”
Regionally, results differed with sales rebounding in the Northeast and South while decreasing in the Midwest and West. Sales in the Northeast jumped 15.4 percent to 86.4 on the Pending Home Sales Index, while sales in the South increased 0.2 percent to 119.0 in May. Sales in the Northeast were still down 11.9 percent from a year ago however, while Southern sales were down 13.8 percent from 2021 levels.
The Midwest saw sales fall 1.7 to a 98.6 on the index, while the West fell 5.0 percent month over month to 81.6. Year over year, sales in the Midwest were down 8.8 percent, and sales in the West were down 19.8 percent from the previous year according to the NAR.