The US housing market took another hit in May, with pending home sales dropping to their lowest level since records began in 2001.
According to the National Association of Realtors (NAR), their index of contract signings fell 2.1% to 70.8 last month.
This sharp downturn reflects the impact of high mortgage rates and soaring home prices on buyer enthusiasm.
NAR’s Chief Economist Lawrence Yun sees the market at a critical juncture. “Supply and demand movements suggest easing home price appreciation in upcoming months,” Yun stated.
He maintains a cautiously optimistic outlook, suggesting that increased inventory could eventually boost sales, especially if mortgage rates decline.
The housing market has been stuck in a rut for over a year, with existing-home sales hovering around 4 million annually.
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This stagnation is partly due to the “lock-in effect,” where current homeowners are reluctant to sell and give up their low mortgage rates.
Pending home sales – a leading indicator for the real estate market – fell to a new all time low.
Monetary policy continues to ice over real estate sector gradually, now seeing with less active builds, but not yet with less employment. #MacroEdge pic.twitter.com/xorZfFGpm5
— Don Johnson (@DonMiami3) June 27, 2024
Adding to buyer frustration, the median home price hit a record $419,300 in May.
However, there’s a glimmer of hope as the supply of existing homes has increased by over 18% from last year.
Mortgage rates continue to be a major hurdle.
The average 30-year fixed rate is now around 7%, more than double what it was in late 2021.
The Federal Reserve’s fight against inflation has put hopes for significant rate cuts on hold, with only one reduction now expected this year.
Regional differences are evident, with the Northeast and West seeing slight gains in pending sales, while the South and Midwest hit their lowest levels since 2010.
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As a leading indicator, these pending sales figures suggest the housing market may face continued pressure in the coming months.
