The pandemic-induced housing boom may not be over quite yet. Despite recent months of softening sales, buyers came back remarkably strongly in May.
Pending home sales, a measure of signed contracts on existing homes, jumped an unexpectedly high 8% in May compared with April, according to the National Association of Realtors. Analysts expected a 1% drop. This is the highest level of sales activity for May since 2005.
Sales were up 13% from May 2020, when the housing market was just beginning to come back from the coronavirus lockdown. Pending contracts are a forward-looking indicator of closed home sales.
“May’s strong increase in transactions – following April’s decline, as well as a sudden erosion in home affordability – was indeed a surprise,” said Lawrence Yun, NAR’s chief economist. “The housing market is attracting buyers due to the decline in mortgage rates, which fell below 3%, and from an uptick in listings.”
After falling quite sharply in April, the average on the 30-year fixed hovered in a tight range throughout May, giving some buyers at least a little relief on potential monthly payments.
But sky-high home prices have been a major concern. In April, the much-watched S&P Case-Shiller National Home Price Index was up more than 14% year over year, the largest gain in its 30-year history.
The Realtors report even higher gains in the median home price, some of which is skewed due to the fact that more of the sales activity is happening on the higher end of the market, where listings are more plentiful. The low end of the market is barely budging, as first-time buyers struggle for meager listings. Investors, the majority of whom use cash, are also more prevalent at the lower end of the market.
Weekly mortgage demand is falling, down nearly 7% on the week, according to the Mortgage Bankers Association — a sign that the housing boom might be starting to fizzle.
“While these hurdles have contributed to pricing out some would-be buyers, the record-high aggregate wealth in the country from the elevated stock market and rising home prices are evidently providing funds for home purchases,” Yun said.
Regionally, pending home sales jumped 15.5% in the Northeast month to month. In the Midwest, sales rose 6.7%. Sales in the South climbed 4.9% from April. In the West, they rose 10.9%.
Tight supply of existing homes has been a major factor, but that supply did rise slightly in May compared with April, although it was still historically low. Supply of existing homes is about 20% below year-ago levels. Homebuilders have also not been ramping up production as quickly as the market is demanding.
Sales of newly built homes in May, which are also measured by signed contracts, fell nearly 6% from April, as builders continued to raise prices. The median price of a newly built home sold in May was up 18%, according to the U.S. Census. Builders have seen soaring costs for land, labor and materials. While the price of lumber has come down dramatically in the last month, it is still well above pre-pandemic levels.