Yahoo Finance Housing conditions worsened for homebuyers in May
The number of homes on the market could not keep up with the demand last month, and buyers were forced to face off with each other.
The National Association of Realtors’ index of pending home sales fell 2.7% to a reading of 76.5 in May, according to data released on Thursday, far exceeding the 0.5% drop that Bloomberg economists forecasted. On a yearly basis, pending transactions plunged by 22.2%. An index of 100 is equal to the level of contract activity in 2001.
The pending sales index, a forward-looking indicator of the housing market's health, highlights how homebuyers are finding too few choices of homes to purchase amid elevated prices and mortgage rates.
“Despite sluggish pending contract signings, the housing market is resilient with approximately three offers for each listing,” NAR chief economist Lawrence Yun wrote in the press release. “The lack of housing inventory continues to prevent housing demand from being fully realized.”
Contract signings decreased in three US regions but jumped in the Northeast over the past month. Pending sales climbed 12.9% in the Northeast but dropped 6.1% in the West, 5.3% in the Midwest, and 4.4% in the South. Signings were down by double-digit percentages in all four regions compared with one year ago.
Housing shortage triggers higher prices
Elevated mortgage rates have convinced many homeowners to stay put rather than sell, resulting in bidding wars as buyers compete for a small pool of homes. That's propped up home prices, which appear to be in recovery mode, according to housing data released this week.
Data from Redfin showed the housing market had 39% fewer homes for sale compared to before the pandemic, and 37% of homes sold in May were above their asking price.
Separately, home prices expanded for the third straight month as the undersupply of homes pushed prices up 0.5% in April on a seasonally adjusted basis compared with the previous month, the S&P CoreLogic Case-Shiller US National Home price index reported. The index also showed that home prices across the 20 biggest metros had a 0.9% gain in April on a seasonally adjusted basis over March.
Other data showed that buyers, frustrated by the lack of homes in the resale market, are flocking to newly built houses. Sales of new homes jumped 12.2% to a seasonally adjusted rate of 763,000 units in May from the previous month, the government reported Tuesday. That's 20% higher than a year ago.
“It is encouraging that homebuilders have ramped up production, but the supply from new construction takes time and remains insufficient,” Yun said. “There should be more focus on boosting existing-home inventory with temporary tax incentive measures.”
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Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv
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