No Reason to Panic, Yet!

John Jordan | June 28, 2017

WASHINGTON—The National Association of Realtors Pending Home Sales Index fell for the third straight month in May, but Joseph Kirchner, Ph.D., chief economist for, says Realtors don’t need to press the panic button, at least not yet.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, decreased 0.8% to 108.5 in May from a downwardly revised 109.4 in April. The index is now 1.7% below a year ago, which marks the second straight annual decline and the most recent since November and December of last year. The one caveat to the Pending Sales Index report, at least for the Northeast, is that although pending home sales were down in May, they were more than 3% higher than the pending transactions registered in May 2016 in the Northeast.

In its report released on June 28th, NAR blamed ongoing supply shortages that are propping up home prices in many metro areas for the continued decline in pending sales. NAR reported that none of the major regions enjoyed an increase in contract activity in May.

Source: National Association of Realtors’s Kirchner released a statement in response to the NAR’s Pending Sales Index results, which stated, “Today’s reported decline in contract signings is the third monthly slip in a row. This could be evidence of a downward trend—but there’s no reason to panic yet. For one, the pending home sales index has been relatively stagnant since 2015, and has dropped to this level during that time. Plus the numbers aren’t a perfect gauge of what’s actually happening in the market.”

He continued that home sales can continue to grow in the face of declining pending sales numbers if the time between signing a contract and officially sale closing shortens.

He noted, “Today’s numbers are yet another indication that the lack of homes for sale is having a major, negative impact on the market. The future direction will be brighter if and when we see a significant uptick in inventory, but that unfortunately doesn’t seem to be right around the corner.”

NAR Chief Economist Lawrence Yun says it’s clear the critically low inventory levels in much of the country has sidetracked the housing market this spring. “Monthly closings have recently been oscillating back and forth, but this third consecutive decline in contract activity implies a possible topping off in sales,” he says. “Buyer interest is solid, but there is just not enough supply to satisfy demand. Prospective buyers are being sidelined by both limited choices and home prices that are climbing too fast.”

The persistent housing shortages seen in several markets are most severe, according to Yun, in the lower price ranges. That’s very apparent when looking at the percentage change in closings in May compared to a year ago. Sales of homes under $100,000 last month were down 7.2% from last year and up only 2.0% for those between $100,000 and $250,000. In higher price brackets, sales expanded incrementally all the way up to massive increases of 26.0% for homes priced between $750,000 and $1 million and even more for those $1 million and up (29.1%).

Weaker financial and economic confidence could also be playing a role in the slowdown in contract activity. NAR’s quarterly Housing Opportunities and Market Experience (HOME) survey, released earlier this week, found that fewer renters think it’s a good time to buy a home, and respondents overall are less confident about the economy and their financial situation than earlier this year.

“The lack of listings in the affordable price range are creating lopsided conditions in many areas where investors and repeat buyers with larger down payments are making up a bulk of the sales activity,” says Yun. “Meanwhile, many prospective first-time buyers can’t catch a break. Prices are going up and there’s intense competition for the homes they’re financially able to purchase.”

Existing-home sales are forecast to be around 5.63 million this year, an increase of 3.2% from 2016 (5.45 million). The national median existing-home price this year is expected to increase around 5%. In 2016, existing sales increased 3.8% and prices rose 5.1%.

“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,” said Yun.

The PHSI in the Northeast decreased 0.8% to 96.4 in May, but remains 3.1% above a year ago. In the Midwest the index was 104.5 in May (unchanged from April), and is 2.8% lower than May 2016.

Pending home sales in the South declined 1.2% to an index of 123.4 in May and are now 1.4% below last May. The index in the West fell 1.3% in May to 98.6, and is now 4.5% below a year ago.

John Jordan
Editor, Real Estate In-Depth