Although pending home sales fell 2.7% month over month in May, according to new data from the National Association of REALTORS®, that’s not necessarily an indication of a slowing housing market.
Low inventory is the primary reason contract signings are down a whopping 22% from a year ago, but strong homebuyer demand is evident. “Despite the sluggish pending contract signings, the housing market is resilient, with approximately three offers for each listing,” says NAR Chief Economist Lawrence Yun. Still, “the lack of housing inventory continues to prevent housing demand from being fully realized.”
Home buyers continue to be met with limited housing options during what’s typically the real estate market’s busiest season. Economists say a “mortgage rate lock-in” effect is occurring, in which homeowners who locked in ultra-low mortgage rates in recent years are reluctant to sell and reenter the market at today’s rates in the 6% range. The current supply of existing homes is about half the level it was in 2019, NAR’s research shows.
A New-Home Boom?
Meanwhile, the market for new construction is a bright spot. Sales of newly built homes jumped 12.2% month over month in May and are up 20% compared to a year ago, the Department of Housing and Urban Development and the Census Bureau reported earlier this week.
“Demand for new homes is strengthening because of a lack of existing-home inventory,” says Alicia Huey, chairperson for the National Association of Home Builders. “And while builders continue to grapple with elevated construction costs, an encouraging sign is a big gain in home sales in the $200,000 to $300,000 price range.” In May, 12,000 homes were sold in that price range—more than double a year earlier, when that figure was 5,000, Huey says.
Options are fairly abundant in the new-home market, too. New-home inventory comprised 31% of total housing inventory in May. Historically, it makes up only about 10% to 15% of the market, says NAHB Chief Economist Robert Dietz.
Nevertheless, while “it is encouraging that homebuilders have ramped up production, the supply from new construction takes time and remains insufficient,” Yun adds. “There should be more focus on boosting existing-home inventory with temporary tax incentive measures” to maintain healthier housing inventory levels that can meet demographic needs in the future.