Pending home sales surge in May
WASHINGTON – June 30, 2014 – Pending home sales rose sharply in May, with lower mortgage rates and increased inventory accelerating the market, according to the National Association of Realtors® (NAR). All four regions of the country saw increases in pending sales, with the Northeast and West experiencing the largest gains.
The Pending Home Sales Index, a forward-looking indicator based on contract signings, increased 6.1 percent to 103.9 in May from 97.9 in April, though it's still a bit down in a year-to-year comparison – 5.2 percent below May 2013's 109.6.
Still, May's 6.1 percent increase was the largest month-over-month gain since April 2010 (9.6 percent), and back then, first-time homebuyers were rushing to sign purchase contracts before a popular tax credit program ended.
Lawrence Yun, NAR chief economist, expects improving home sales in the second half of the year.
"Sales should exceed an annual pace of five million homes in some of the upcoming months behind favorable mortgage rates, more inventory and improved job creation," he says. "However, second-half sales growth won't be enough to compensate for the sluggish first quarter and (total sales for the year) will likely fall below last year's total."
Despite the gains, Yun says that affordability and access to credit remains an area of concern for first-time homebuyers who typically carry student loan debt and have lower credit scores. First-time buyers accounted for only 27 percent of existing-home sales in May.
"The flourishing stock market the last few years has propelled sales in the higher price brackets, while sales for homes under $250,000 are 10 percent behind last year's pace," says Yun. "Meanwhile, apartment rents are expected to rise 8 percent cumulatively over the next two years because of tight availability. Solid income growth and a slight easing in underwriting standards are needed to encourage first-time buyer participation, especially as renting becomes less affordable."
Pending home sales in the Northeast jumped 8.8 percent to 86.3 in May, and is now 0.2 percent above a year ago. In the Midwest, the index rose 6.3 percent to 105.4 in May, but it's still 6.6 percent below May 2013.
Pending home sales in the South advanced 4.4 percent to an index of 117.0 in May, but it's 2.9 percent below a year ago. The index in the West rose 7.6 percent in May to 95.4, but it remains 11.1 percent below May 2013.
Yun expects existing-homes sales to be down 2.8 percent this year to 4.95 million, compared to 5.1 million sales of existing homes in 2013. The national median existing-home price is projected to grow between 5 and 6 percent this year, and in the range of 4 to 5 percent in 2015.
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