Sales of previously owned pending homes unexpectedly fell in May, suggesting sales may remain weak for a while as potential buyers face rising mortgage rates and prices.
The National Association of Realtors (NAR) said on Thursday that the pending home sales index, based on signed contracts, fell 2.1% last month to 70.8. Sales of suspended homes fell in the densely populated South and Midwest, which is considered an affordable area. Rose in the northeast and west.
Economists polled by Reuters had expected contracts, which become sales a month or two later, to rebound by 2.5 percent. Pending home sales fell 6.6 percent in May year-on-year. Lawrence Yun, chief economist at NAR, said: “The market is at an interesting stage with high inventories and low demand.”
The housing market was hit by the return of mortgage rates, with sales and home construction falling in May. Residential investment is expected to decline in the second quarter after recording double-digit growth in the January-March quarter.
Data from mortgage finance agency Freddie Mack showed the average interest rate on a 30-year fixed-rate mortgage hit a six-month high of 7.22% in early May before falling to 7.03% by the end of the month. It has since fallen to an average of 6.87% during the week ending June 20.
“The first half of the year did not meet expectations in terms of home sales but exceeded expectations regarding house prices,” Yun said. “In the second half of 2024, look forward to moderately lower mortgage rates, higher home sales and stable house prices.”
Outstanding home sales are a key indicator of the real estate market
Monthly pending home sales refer to a key economic indicator that measures the change in the number of homes contracted for sale, but not yet closed, during a specific month compared to the previous month. It provides insight into the future direction of the housing market and is a key indicator of existing home sales.
The term “pending” indicates that a sales contract has been signed between the buyer and the seller, but the transaction has not been completed, usually due to conditions such as inspections, valuations or mortgage approvals that must be fulfilled before the sale can be completed.
The Pending Home Sales Report was released by the National Association of Realtors (NAR) in the United States. It covers a wide range of housing types, including single-family homes, condominiums, and cooperatives.
Investors and economists are keeping a close eye on pending home sales data as it provides valuable insights into the overall health of the real estate market. The positive percentage change indicates an increase in pending home sales, suggesting a potentially strong housing market in the coming months. Conversely, a negative change indicates a decline in pending home sales, which may indicate a weaker housing market.
Pending home sales data is often used in conjunction with other housing market indicators, such as existing home sales, housing starts, and building permits, to assess the overall strength and trend of the real estate sector..
The housing market plays an important role in consumer confidence and spending. Positive outstanding home sales data can boost consumer sentiment, as it points to a healthy housing market and potential accumulation of wealth for homeowners. Increased consumer confidence can lead to increased consumer spending on related goods and services, such as furniture, appliances, and home improvement products.
It is important to note that pending home sales data is subject to revisions, and final closed sales figures may differ from the initial reported figures. Therefore, it is advisable to consider multiple data points and trends when analyzing the housing market and making investment decisions.
Factors affecting monthly changes in pending home sales
There are several factors that can affect changes in pending home sales on a monthly basis. Some of the main factors include:
Mortgage rates: Fluctuations in mortgage interest rates can affect affordability of homes. Lower rates tend to stimulate more homebuyer activity, leading to an increase in pending home sales, while higher rates can reduce demand and lead to decline.
Economic conditions: The overall state of the economy, including factors such as employment levels, income growth, and consumer confidence, can affect individuals’ willingness and ability to buy homes. Positive economic conditions often lead to higher pending home sales, while an economic downturn can cause a drop in demand.
Housing market inventory: The availability of homes for sale can significantly affect pending home sales. When there is a limited supply of homes in the market, this can lead to increased competition among buyers and possibly increased sales activity. Conversely, an increased supply of homes can create a more favorable buyer market, leading to higher pending home sales.
Seasonal factors: The time of year can also affect pending home sales. Traditionally, the spring and summer months tend to increase the activity of homebuyers, while the winter months may see a slowdown. Seasonal trends in the real estate market can affect monthly changes in sales of pending homes.
Government policies: Changes in government policies related to housing, such as tax incentives, mortgage regulations, or first-time home buyer programs, can affect buyer behavior, and consequently pending home sales.
Demographic factors: Demographic shifts, such as changes in population, household composition rates, or generational preferences, can affect housing demand, thereby affecting pending home sales.
It is important to note that these factors can interact with each other and vary in impact from region to region, leading to fluctuations in sales of pending homes on a monthly basis.
