May was a solid month for pending home sales activity, but uncertainty remains for housing’s future

Pending home sales continued their hot streak in May, rising by monthly and yearly measurements to their highest level in nine years, according to the National Association of Realtors.

The Pending Home Sales Index (PHSI), which NAR uses to track contract signings, rose 0.9 percent from April to May and 10.4 percent from May 2014 to a reading of 112.6. That marks the fifth month in a row of monthly increases and the ninth month of yearly increases, and not since April 2006, when the index stood at 113.7, has the PHSI been higher.

Regionally speaking, the PHSI posted consistent increases. In the Northeast, the PHSI rose 6.3 percent monthly and 10.6 percent yearly, while in the Midwest, it fell 0.6 percent monthly but rose 7.8 percent yearly. In the South, the index fell 0.8 percent monthly and rose 10.6 percent yearly, and in the West, both monthly and yearly measurements were positive, rising 2.2 percent and 13.0 percent, respectively.

Affordability Concerns Mount

Lawrence Yun, NAR’s chief economist, did note a troubling downside to recent home sales activity – it pushes homeownership further out of reach for middle-class consumers.

“Housing affordability remains a pressing issue, with home price growth increasing around four times the pace of wages,” Yun said. “Without meaningful gains in new and existing supply, there’s no question the goalpost will move further away for many renters wanting to become homeowners.”

That divide is also apparent in recent sales data. According to NAR’s breakdown for existing-home sales – which pending sales, once they close, become a part of – higher-priced listings saw far greater sales activity than reasonably priced listings:

• Sales for existing homes priced $100,000 and below sank 13.9 percent year-over-year, and sales for homes priced $100,000 to $250,000 rose just 3.6 percent.
• Meanwhile, sales jumped 17.4 percent for homes priced $250,000 to $500,000, 14.5 percent for listings priced $500,000 to $750,000 and 12.5 percent for listings priced $750,000 to $1 million.
• Even luxury listings priced $1 million and above saw stronger sales activity, with sales rising 8 percent.

Such breakdowns are also seen in the new home sales market. In May, sales of new construction listings priced $199,999 and below rose 11.3 percent year-over-year, but new construction priced $400,000 and above saw sales rise 33 percent.