Dive Brief:
- The rate of pending home sales, indicating the number of homes under contract in the U.S., dipped 0.8% from April to a mark of 108.5 in May on the National Association of Realtors’ Pending Home Sales Index, released Wednesday.
- Pending sales in the West fell 1.3% in May to a score of 98.6, putting that region 4.5% behind its May 2016 level. The Northeast dropped 0.8% to 96.4 in May, but is still 3.1% ahead of the year-ago mark. The Midwest remained unchanged at 104.5 for the month, but came in 2.8% below a year ago. And the South fell 1.2% in May to 123.4, putting it 1.4% behind year-over-year.
- Total U.S. pending home sales in May were 1.7% below May 2016, representing the second-consecutive year-over-year decline.
Dive Insight:
Dwindling supply and soaring home prices are continuing to drag down pending home sales, according to NAR Chief Economist Lawrence Yun. The three-straight months of declines in contract activity could signal a plateau in sales, Yun said in a release, with potential buyers seeing their homeownership prospects hampered by the holding pattern created by supply failing to meet demand.
In May, Yun warned that it was unlikely supply levels would return to their necessary levels anytime soon, as builders face supply-side headwinds — like persisting lot and labor shortages — and homeowners remain cautious in listing their existing properties for fear of being unable to find a suitable replacement home in time. Strained supply and a lack of mobility on the part of existing homeowners has tightened entry-level inventory, especially, fueling intense competition among potential first-time buyers.
Both new and existing-home sales bounced back in May after slipping April, though analysts say the strong competition fueling rapid sales and, in turn, intensifying price growth, aren't sustainable for the market. That competition and its price-related repercussions are likely to continue, as May's housing starts once again missed analyst expectations, sliding to their lowest level in eight months. Building permit authorizations — indicating future growth in the segment — continued to fall back for the period, marking their lowest level in more than a year.
A dropoff in builder optimism also suggests the market will continue to struggle in its recovery, with all three of the National Association of Home Builders/Wells Fargo Housing Market Index's sub-indices recording losses in June. The overall decline reflects builders' frustration in finding skilled laborers and available lots, and the downturn in optimism regarding buyer traffic points to the trend of home-price increases beginning to dampen buyer demand.