Not great news on the real estate front as pending home sales in May slipped 2.1%, according to the National Association of REALTORS.

Losses Abound

The Midwest and South posted monthly losses in transactions while the Northeast and West recorded gains. Year-over-year, all U.S. regions registered reductions.

The Pending Home Sales Index (PHSI)* – a forward-looking indicator of home sales based on contract signings – decreased to 70.8 in May. Year over year, pending transactions were down 6.6%. An index of 100 equals the level of contract activity in 2001.

“The market is at an interesting point with rising inventory and lower demand,” said NAR Chief Economist Lawrence Yun in a news release. “Supply and demand movements suggest easing home price appreciation in upcoming months. Inevitably, more inventory in a job-creating economy will lead to greater home buying, especially when mortgage rates descend.”

U.S. Economic Forecast

NAR predicts mortgage rates will remain above 6% in 2024 and 2025, even with the Federal Reserve cuts to the Fed Funds rate.

The association forecasts that existing home sales will rise to 4.26 million in 2024 (from 4.09 million in 2023) and to 4.92 million in 2025 (from 2024). Housing starts are expected to rise to 1.382 million in 2024 (from 1.413 million in 2023) and to 1.492 million in 2025 (from 2024).

NAR anticipates the median existing home price will increase to a record annual high of $405,300 in 2024 (from $389,800 in 2023) and to $412,000 in 2025 (from 2024). NAR forecasts an increase in the median new home price to $434,100 in 2024 (from $428,600 in 2023) and $441,200 in 2025 (from 2024).

“The first half of the year did not meet expectations regarding home sales but exceeded expectations related to home prices,” explained Yun. “In the second half of 2024, look for moderately lower mortgage rates, higher home sales, and stabilizing home prices.”

Pending Home Sales Regional Breakdown

The Northeast PHSI ascended 1.1% from last month to 63.6, a decline of 2.3% from May 2023. The Midwest index dropped 0.4% to 70.4 in May, down 5.6% from one year ago.

The South PHSI lowered 5.5% to 83.7 in May, falling 10.4% from the prior year. The West index increased 1.4% in May to 56.7, down 2.1% from May 2023.

Methodology

*The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.

Pending contracts are good early indicators of upcoming sales closings. However, the amount of time between pending contracts and completed sales is not identical for all home sales. Variations in the length of the process from pending contract to closed sale can be caused by issues such as buyer difficulties with obtaining mortgage financing, home inspection problems, or appraisal issues.

The index is based on a sample that covers about 40% of multiple listing service data each month. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months.

An index of 100 equals the average level of contract activity during 2001, which was the first year to be examined. By coincidence, the volume of existing home sales in 2001 fell within the range of 5.0 to 5.5 million, which is considered normal for the current U.S. population.

Source: NAR