The Pending Home Sales Index is a leading indicator of housing activity. It measures housing contract activity and is based on signed real estate contracts for existing single-family homes, condos, and co-ops. When a seller accepts a sales contract on a property, it is recorded into a Multiple Listing Service (MLS) as a “pending home sale.” Most pending home sales become home sale transactions, typically one to two months later. Here are the latest Pending home sales trends for May 2024.
Pending Home Sales Dropped 2.1% in May
Pending home sales in May experienced a 2.1% decline, as reported by the National Association of REALTORS® (NAR). The Midwest and South regions saw a decrease in contract signings, while the Northeast and West regions recorded an increase. When compared to the same period last year, all regions across the U.S. saw a decline in pending home sales.
Pending Home Sales Index (PHSI)
The Pending Home Sales Index (PHSI), a predictive indicator of future home sales based on contract signings, dropped to 70.8 in May. This represents a year-over-year decrease of 6.6%. An index value of 100 corresponds to the level of contract activity in 2001.
Economic Insight
According to NAR Chief Economist Lawrence Yun, the housing market is currently in a phase where rising inventory is met with lower demand. This trend indicates a possible slowing in home price appreciation in the coming months. Yun noted, “More inventory in a job-creating economy will likely boost home buying, particularly when mortgage rates decrease.”
U.S. Economic Forecast
NAR predicts that mortgage rates will stay above 6% through 2024 and 2025, despite anticipated cuts to the Fed Funds rate. The association projects existing-home sales will rise to 4.26 million in 2024, up from 4.09 million in 2023. In 2025, sales are expected to reach 4.92 million.
Housing starts are also forecasted to increase, reaching 1.382 million in 2024 and 1.492 million in 2025. The median existing-home price is anticipated to hit a record high of $405,300 in 2024, up from $389,800 in 2023. In 2025, this figure is expected to rise to $412,000. The median new home price is forecasted to increase to $434,100 in 2024 and $441,200 in 2025.
Yun explained, “The first half of the year didn't meet expectations for home sales but exceeded expectations for home prices. For the latter half of 2024, expect slightly lower mortgage rates, higher home sales, and stabilized home prices.”
Regional Breakdown
Northeast
The Northeast PHSI rose by 1.1% from the previous month to 63.6, though it is down 2.3% compared to May 2023.
Midwest
The Midwest index dropped 0.4% in May to 70.4, a decline of 5.6% from the same period last year.
South
The South PHSI decreased by 5.5% to 83.7 in May, marking a 10.4% drop from May 2023.
West
The West index increased by 1.4% in May to 56.7, though it is still down 2.1% from the previous year.
The housing market is navigating through a phase of fluctuating inventory and demand dynamics. Despite a slight dip in pending home sales for May, the forecast for the coming years shows a promising increase in both sales and home prices. As the economy continues to evolve, keeping an eye on mortgage rates and regional variations will be crucial for prospective homebuyers and industry professionals alike.
Pending Home Sales Trends for the Last 12-Months
The table shows data from regarding pending home sales in four regions of the United States – Northeast, Midwest, South, and West. The data reveals interesting trends in pending home sales across the regions. The National Association of Realtors (NAR) publishes monthly data on pending home sales, which is seasonally adjusted and presented in the form of a seasonally adjusted annual rate (SAAR) in thousands.
Here is the tabular data of pending home sales from May 2023 to May 2024. The units displayed are in thousands and are the seasonally adjusted annual rate.
The Pending Home Sales Index Explained
The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing. Pending contracts are good early indicators of upcoming sales closings. However, the amount of time between pending contracts and completed sales is not identical for all home sales.
Variations in the length of the process from pending contract to closed sale can be caused by issues such as buyer difficulties with obtaining mortgage financing, home inspection problems, or appraisal issues. According to the National Association of REALTORS®, the index is based on a sample that covers about 40% of multiple listing service data each month.
In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months. An index of 100 equals the average level of contract activity during 2001, which was the first year to be examined. By coincidence, the volume of existing home sales in 2001 fell within the range of 5.0 to 5.5 million, which is considered normal for the current U.S. population.
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