Pending home sales jumped higher in May, rising to the highest level for the month since 2005.
The National Association of Realtors said on Wednesday that its Pending Home Sales Index, based on contracts to buy previously owned homes, rose 8.0 percent in May to a reading of 114.8. Economists polled by Econoday had forecast a 0.8 percent decline after a disappointing April.
“May’s strong increase in transactions—following April’s decline, as well as a sudden erosion in home affordability—was indeed a surprise,” said Lawrence Yun, the association’s chief economist. “The housing market is attracting buyers due to the decline in mortgage rates, which fell below 3 percent, and from an uptick in listings.”
Sales were up across the country, with the strongest rise in the Northeast, where the index was up 15.5 percent.
The housing market has been hot for a year now. Many apartment and condo-dwelling city residents decided during the pandemic to move into more spacious single-family homes. Shuttered urban amenities—such as museums, restaurants, theaters, music venues, and bars—eased city residents’ hesitancy to move into suburbs and encouraged those who might have moved in the coming years to move up plans and buy a home immediately. Rising crime in the cities, where murder rates have skyrocketed, and politicized racial strife resulting in anti-police protests and rioting last summer, have also contributed to the flight to suburbs.
What’s more, many families found that they had extra cash after the pandemic suppressed spending on services and entertainment while government programs pumped cash into the private sector. The stock market’s historic bull run since last spring has pumped up household wealth, as have rising home prices. This has helped home sales grow despite obstacles that included pandemic-induced obstacles to showing homes, record-high prices, and all-time low inventories of homes for sale.
“While these hurdles have contributed to pricing out some would-be buyers, the record-high aggregate wealth in the country from the elevated stock market and rising home prices are evidentially providing funds for home purchases,” Yun said.
The high prices and strong demand will likely result in more homes coming on to the market, especially if supply chain problems that have elevated lumber prices and supersized unemployment benefits that have hurt the labor market subside. This could reduce prices in some of the markets that have seen the most explosive growth, making home-buying more affordable.
“Home price growth will steadily moderate with increased supply, but a broad and prolonged decline in prices is unlikely,” Yun said. “However, if a reduction occurs in some markets, homebuyers will view the lower home price as a second-chance opportunity to get into the market after being outbid in the previous multiple bid market conditions.”