Pending home sales slumped for the third consecutive month in May as thehousing market has begun to see the ill effects of a severe shortage of homes for sale, the National Association of Realtors (NAR) reported.
NAR’s pending-sales index, which is based on signed contracts for existing homes, declined 0.9 percentage points, to 108.5, in May from the April level. Contract activity was down in all regions over the month.
Pending home sales also ran 1.7 percent below the level of a year ago, the second consecutive year-over-year decline.
Although existing-home sales figures were strong in May, because of the inventory shortages, particularly in affordable price ranges, the market will likely slow down through the summer, NAR predicts.
"Buyer interest is solid, but there is just not enough supply to satisfy demand,” NAR Chief Economist Lawrence Yun said. “Prospective buyers are being sidelined by both limited choices and home prices that are climbing too fast."
Other factors also could be slowing contract activity down. In a survey, NAR found that fewer renters believed it was a good time to buy a house and felt less secure about their financial situation. That survey also found that more homeowners believe it is a good time to sell, which could bode well for the market if ultimately more homes are listed.
"A much higher share of homeowners compared to a year ago think now is a good time to sell, but until they do, sales will likely stay flat and low inventory will keep price growth moving swiftly," Yun said.
Yun said sales of homes in lower price ranges are already on the decline. Sales of homes priced under $100,000 were down 7 percent in May compared to the same month last year. Sales of home priced between $100,000 to $200,000 were up just 2 percent year over year. Meanwhile, homes priced between $750,000 and $1 million were up by 26 percent year over year, and homes priced above $1 million were up 29 percent.
"The lack of listings in the affordable price range are creating lopsided conditions in many areas where investors and repeat buyers with larger downpayments are making up a bulk of the sales activity," Yun said.
"Meanwhile, many prospective first-time buyers can't catch a break," he said. "Prices are going up, and there's intense competition for the homes they're financially able to purchase."
NAR continues to forecast that existing-home sales will end the year at around 5.63 million, up 3.2 percent from 2016. The national median existing-home price this year is expected to increase around 5 percent. In 2016, existing sales increased 3.8 percent and prices rose 5.1 percent.