Suburban row houses

Pending home sales fell, but a summer bump is still possible 

NAR's Pending Home Sales Index for May showed national declines but significant gains in the Northeast.

June 29, 2023
3 minutes

Key points:

  • Pending home sales were down 2.7% from April and fell more than 20% year-over-year.
  • Contract signings decreased in three U.S. regions but jumped in the Northeast.
  • Despite the declines, economists view the housing market as "resilient" and potentially able to "defy expectations" as the summer progresses.

Daffodils and lilacs may have blossomed in May, but U.S. pending home sales wilted.

After holding steady in April, pending home sales dropped by 2.7% in May according to the National Association of Realtors.

The lone bright spot in the report was the Northeast, a late-bloomer where pending sales surged 12.9%. But the spike comes after the region, which includes all of the New England states, posted a dramatic 11.3% decline the previous month while other regions grew or remained steady in April.

The Pending Homes Sales Index (PHSI) includes sales contracts on existing homes, not closed transactions.

On an annual basis, every region saw year-over-year declines in pending sales, according to the report, with an overall national drop in pending transactions of 22.2%. The national PHSI was 76.5 in May; an index of 100 equates to the level of contract activity in 2001. 

Economists weigh in

Experts blame two persistent culprits — low inventory exacerbated by high interest rates — for the drop, but that doesn't mean buyers aren't out there.

"Despite sluggish pending contract signings, the housing market is resilient with approximately three offers for each listing," said NAR Chief Economist Lawrence Yun, adding that "the lack of housing inventory continues to prevent housing demand from being fully realized."

The monthly decline represented "a typical seasonal decline as the spring market would normally begin to wind down," according to Lisa Sturtevant, Bright MLS Chief Economist. But don't assume this is a return to normal patterns.

"Post-pandemic, there was an expectation that we would see a return to housing market seasonality," she said. "But the housing market continues to defy expectations and it is possible that we will see the spring market extend into summer as buyers face limited choices and are waiting for mortgage rates to come down."

Existing homes sales are key to a healthy market

As pending and closed sales of existing homes have slid or remained nearly flat, new home sales have accounted for an increasing share of the market. 

While Yun said new construction figures are promising, efforts to raise existing home sales are critical, as the inventory of newly built homes isn't enough to counteract the decline in existing-home inventory.

"It is encouraging that homebuilders have ramped up production, but the supply from new construction takes time and remains insufficient," he said. "There should be more focus on boosting existing-home inventory with temporary tax incentive measures."

Regional figures

  • The Northeast PHSI climbed 12.9% from last month to 66.7, a decrease of 21.9% from May 2022. 

  • The Midwest index dropped 5.3% to 74.4 in May, down 23.5% from one year ago.

  • The PHSI in the South — a region with consistently strong price growth — decreased 4.4% to 94.4 in May, off 19.6% from the prior year.

  • The West index was the lowest and fell another 6.1% in May to 58.4, down 26.6% from May 2022.

As the warning goes, past performance is no guarantee of future results, and Sturtevant said she's not ready to count this year's market out.

"Market conditions in the Mid-Atlantic remain surprisingly strong, with home prices still rising and homes still selling quickly," she said. "We could see surprisingly strong June Pending Home Sales when the data are released next month."

The June pending home sales report will be released July 27.

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