Supply shortages that are propping up home prices in many metro areas in the United States but pending property sales fell in May for a third month in a row, the latest index shows.
The pending home sales index, a forward looking indicator based on contract signings from the National Association of Realtors, fell by 0.8% and is now 1.7% below a year ago, which marks the second straight annual decline and the most recent since November and December of last year.
According to Lawrence Yun, NAR chief economist, critically low inventory levels in much of the country have affected the housing market. ‘Monthly closings have recently been oscillating back and forth, but this third consecutive decline in contract activity implies a possible topping off in sales,’ he said.
‘Buyer interest is solid, but there is just not enough supply to satisfy demand. Prospective buyers are being side lined by both limited choices and home prices that are climbing too fast,’ he explained.
He pointed out that the persistent housing shortages seen in several markets are most severe in the lower price ranges. The index report reveals that sales of homes under $100,000 last month were down 7.25 from last year and up only 2% for those between $100,000 and $250,000.
In higher price brackets, sales expanded incrementally all the way up to 26% for homes priced between $750,000 and $1 million and 29.1% for those for sale at $1 million and more.
Yun also pointed out that weaker financial and economic confidence could also be playing a role in the slowdown in activity. This comes at a time when separate NAR research shows that fewer renters think it’s a good time to buy a home, and respondents overall are less confident about the economy and their financial situation than earlier this year.
‘The lack of listings in the affordable price range are creating lopsided conditions in many areas where investors and repeat buyers with larger down payments are making up a bulk of the sales activity,’ said Yun.
‘Meanwhile, many prospective first-time buyers can’t catch a break. Prices are going up and there’s intense competition for the homes they’re financially able to purchase,’ he added.
Existing home sales are forecast to be around 5.63 million this year, an increase of 3.2% from 2016 and the national median existing home price this year is expected to increase around 5%. This compares to a rise in sales of 3.8% in 2016 and price growth of 5.1%.
‘A much higher share of homeowners compared to a year ago think now is a good time to sell but until they do, sales will likely stay flat and low inventory will keep price growth moving swiftly,’ said Yun.
A breakdown of the figures show that sales decreased by 0.8% in the Northeast but are still 3.1% above a year ago. In the Midwest sales were unchanged in May and are 2.8% lower than May 2016.
Pending home sales in the South fell by 1.2% in May and are now 1.4% below last May. The index in the West fell by 1.3% in May and are now 4.5% below a year ago.