Declining mortgage rates drove an increase in pending home sales, pushing the index forward 1.1% in May, according to the latest report from the National Association of Realtors.
The Pending Home Sales Index, a forward-looking indicator based on contract signings, slightly increased to 105.4 in May, rising from April’s 104.3.
Despite this growth, NAR indicates that year-over-year contract signings fell 0.7%, marking the 17th consecutive month of annual decreases.
Nevertheless, the index revealed that activity in three of the four major regions improved as the PHSI in the Northeast, South and Midwest rose. Unfortunately, activity in the West slightly declined for another consecutive month.
These are the PHSI changes for each region:
- Northeast: Increased 3.5 % to 92 but is 0.5% lower than May 2018
- Midwest: Increased 3.6% to 100.3 but fell 1.2% from May 2018
- South: Increased 0.1% to 124.1 and is 0.7% higher than May 2018
- West: Decreased 1.8% to 91.8 and is 3.1% lower than May 2018
NAR’s Chief Economist Lawrence Yun said lower-than-usual mortgage rates have led to the increase in pending sales for May.
“Rates of 4% and, in some cases even lower, create extremely attractive conditions for consumers,” Yun said. “Buyers, for good reason, are anxious to purchase and lock in at these rates.”
However, Yun noted that while contract signings and mortgage applications have increased, there is still a great need for more inventory.
“Home builders have not ramped up construction to the extent that is needed,” Yun said. “Homes are selling swiftly, and more construction will help keep home prices manageable and thereby allow more middle-class families to attain ownership opportunities.”