Pending home sales rose less than expected in May but are still at the highest level since 2006.
The National Association of Realtors’ index of pending home sales rose less than expected, by 0.9% to a seasonally-adjusted 112.6.
“The housing market appears to be much improved from the lull across the first three months of the year, with activity picking up markedly. After sideways movement in demand over the past 12-24 months, further improvement in housing will offer welcome support to economic activity,” said Lindsey Piegza, chief economist for Stiffel. “Still, be warned, continued momentum in the housing market is predicated on continued growth in job and income creation. At this point, with earnings growth stagnant at 2% since the end of the recession, consumers continue to face barriers to entry amid an inability to finance a home purchase. In other words, we remain cautiously optimistic.”
The index tracks contract signings, in which a contract has been signed, but not yet closed.
“This is a positive sign that the economy and the housing market are improving,” said Jeff Taylor, managing partner for Digital Risk. “Closed home sales were up in May compared to April by 5.1% — better than expected and an indication that fewer transactions are falling apart due to financing issues.
“On the negative side: month-over-month pending sales rose less than expected in May compared to April — just 0.9% compared to expected 1.1%. This could be an indication that concern over the uptick in interest rates is slowing the housing market. We’ll know if it's a trend next month.”
Analysts had expected a 1-1.2% increase.
“The steady pace of solid job creation seen now for over a year has given the housing market a boost this spring,” NAR chief economist Lawrence Yun said.
Last week, the association saw a sharp pickup in existing home sales following a decline in April. Sales of new single-family houses in May 2015 were at a seasonally adjusted annual rate of 546,000, which is up 2.2% from April.
“This measure of home sales has been rising steadily since January despite the harsh winter weather. This therefore set up for a solid selling season. The improvement in pending home sales has been supported by a gain in mortgage applications and new home sales,” according to a client note from Bank of America/Merrill Lynch.
“It's very encouraging to now see a broad based recovery with all four major regions showing solid gains from a year ago and new home sales also coming alive,” Yun said.
Yun does warn that this year's stronger sales amidst similar housing supply levels from a year ago have caused home prices to rise to an unhealthy and unsustainable pace.
"Housing affordability remains a pressing issue with home-price growth increasing around four times the pace of wages," Yun said. "Without meaningful gains in new and existing supply, there's no question the goalpost will move further away for many renters wanting to become homeowners."
The PHSI in the Northeast increased 6.3% to 93.9 in May, and is now 10.6% above a year ago. In the Midwest the index declined 0.6% to 111.4 in May, but is still 7.8% above May 2014.
Pending home sales in the South decreased 0.8% to an index of 127.8 in May but are still 10.6% above last May. The index in the West rose 2.2% in May to 104.5, and is 13.0% above a year ago.
On Wednesday, July 1, Yun will be sharing his mid-year analysis on the housing market and what to expect for the rest of 2015 in a write-up on NAR Research's Economists' Outlook blog.