Pending sales continue to decrease in May

Pending sales of existing homes were down on an annual basis for the fifth month in a row in May, with the National Association of Realtors saying it reflects a lack of supply rather than reduced demand. The organization also downgraded its forecast for existing home sales, saying it now expects a year-overyear decline in 2018.

The Pending Home Sales Index maintained by the National Association of Realtors stood at 105.9 in May. This was down 0.5 percent from April's reading of 106.4, and a 2.5 percent drop from the May 2017 figure of 108.6.

An index of 100 is equal to existing home sales activity in the year 2001. That year's sales total fell within the range of 5 million to 5.5 million, which is considered normal for the current population of the United States. A pending sale is defined as a transaction where a contract has been signed but the sale has not been closed; since the sale is typically finalized within a couple of months, the Pending Home Sales Index is often a good indicator of existing home sales activity in the near future.

"Pending home sales underperformed once again in May, declining for the second straight month [from the previous month] and coming in at the second lowest level over the past year," said Lawrence Yun, chief economist at the National Association of Realtors. "Realtors in most of the country continue to describe their markets as highly competitive and fast moving, but without enough new and existing inventory for sale, activity has essentially stalled."

Yun said there would be a number of signs to indicate a dropping demand for home purchases. These would include a slowdown in home price growth, an increase in available homes for sale, and homes spending more time on the market before finding a buyer.

Instead, the exact opposite has occurred. The National Association of Realtors' most recent existing home sales report, from May, found that the national inventory of properties for sale has declined on a year-over-year basis for 36 consecutive months. The national median home price has seen year-over-year growth for 75 straight months, while the average home sold during the month was on the market for just 26 days.

"With the cost of buying a home getting more expensive, it's clear the summer months will be a true test for the housing market," said Yun. "One encouraging sign has been the increase in new home construction to a 10-year high. Several would-be buyers this spring were kept out of the market because of supply and affordability constraints. The healthy economy and job market should keep many of them actively looking to buy, and any rise in inventory would certainly help them find a home."

Yun revised his forecast for existing home sales, which originally suggested a 0.5 percent increase to 5.54 million transactions and a median home price increase of 5.1 percent. He now predicts that existing home sales will fall 0.4 percent to 5.49 million, while the median home price will increase by 5 percent.

In 2017, existing home sales were up 1.1 percent while prices increased by 5.7 percent.

Each of the four geographical regions outlined by the National Association of Realtors saw an annual decrease in pending sales, though most regions had stronger pending sales than the previous month. The Pending Home Sales Index in the Northeast in May was 92.4, up 2 percent from April but a year-over-year drop of 4.8 percent.

In the West, the PHSI of 94.7 rose 0.6 percent from the previous month but fell 4.1 percent from the previous year. The index in the Midwest was up 2.9 percent to 101.4, though this remained 2.5 percent below the figure for May 2017. The PHSI in the South fell 3.5 percent to 122.9, which was unchanged from the previous year.