It hasn’t been a great few months for home sales, with existing home sales falling for four straight months. New home sales haven’t been much better, declining in both April and May. But the home sales slowdown looks like it will be ending very soon.
New data from the National Association of Realtors shows that pending home sales, an indicator of future home sales based on signed real estate contracts, bounced back big-time in May.
According to the report, pending home sales rose by 8% in May over April’s lackluster results, indicating that home sales are set to increase in the next few months.
But the increase from April to May isn’t the big story. The big story is just how good May’s results were.
According to NAR, pending home sales in May 2021 were higher than they’ve been in any month of May since 2005. Put another way, pending home sales just had its best May in 16 years.
"May's strong increase in transactions – following April's decline, as well as a sudden erosion in home affordability – was indeed a surprise," said Lawrence Yun, NAR's chief economist. "The housing market is attracting buyers due to the decline in mortgage rates, which fell below 3%, and from an uptick in listings."
According to Yun, prospective buyers have not yet been deterred by record home prices and a historic lack of inventory. Yun adds that both of those issues may be working themselves out somewhat.
"While these hurdles have contributed to pricing out some would-be buyers, the record-high aggregate wealth in the country from the elevated stock market and rising home prices are evidently providing funds for home purchases,” Yun said. "More market listings will appear in the second half of 2021, in part from the winding down of the federal mortgage forbearance program and from more home building.”
Yun said that home price increases may moderate with more inventory hitting the market, but notes that a “broad and prolonged decline in prices is unlikely.”
Nonetheless, would-be buyers may soon have a better chance to secure the home of their dreams.
"However, if a reduction occurs in some markets, homebuyers will view the lower home price as a second-chance opportunity to get into the market after being outbid in previous multiple-bid market conditions,” Yun said.