Pending home sales broke a six-month streak of declines in May, but economists warn the increases likely are temporary. Contract signings—a forward-looking indicator of home sales based on contract signings—inched up 0.7% last month, the National Association of REALTORS® reported Monday.
“Despite the small gain in pending sales from the prior month, the housing market is clearly undergoing a transition,” says NAR Chief Economist Lawrence Yun. “Contract signings are down sizably from a year ago because of much higher mortgage rates.” Pending home sales have fallen 13.6% from a year ago.
Economists have pointed to rapidly rising mortgage rates to explain buyers growing more cautious. The monthly payment on a median-priced single-family home, assuming a 10% down payment, has risen by about $800 since the beginning of the year due to the increase in mortgage rates. Rates have jumped by 2.5 percentage points since January.
“Trying to balance the housing market by choking off demand via higher mortgage rates is damaging to consumers and the economy,” Yun says. “The better way to balance the market is through increased supply, which also helps the broader economy.”Yet, housing shortages abound nationwide, and a lack of listings continues to be problematic for the housing market. As such, fluctuations in home prices and housing affordability led to significant regional differences in contract signings in May, Yun says. For example, the Western region posted the largest decrease in contract activity. That is also the region of the U.S. where homes tend to be the most expensive. “This further indicates the growing need to increase supply to tame home price growth and improve the chances of ownership for potential home buyers,” Yun says.