Pending home sales hit their highest level in over nine years in May, indicating that the strong existing and new home sales announced last week are likely to be repeated again for June and maybe even July activity. The National Association of Realtors® (NAR) said that its Pending Home Sales Index (PHSI) rose 0.9 percent from April's level of 11.6 to 112.6 in May. The report came in ahead of one survey's expectations of a 0.6 percent increase, but behind the Reuters poll of 1.2 percent.
The rise in the PHSI put it 10.4 percent higher than in May 2014 and marked its ninth straight year-over-year gain. It is now at its highest point since April 2006 when it hit 113.7.
It was also the fifth straight month-over-month increase and NAR's chief economist Lawrence Yun said this increases the likelihood the home are heading into their best year since the housing crisis began. "The steady pace of solid job creation seen now for over a year has given the housing market a boost this spring," said Yun. "It's very encouraging to now see a broad based recovery with all four major regions showing solid gains from a year ago and new home sales also coming alive."
The PHSI is a leading indicator based on contract signings for home purchases including single family homes, condos, co-ops, and townhouses. These contracts general result in a sale within 60 days.
Yun does warn that this year's stronger sales amidst similar housing supply levels from a year ago have caused home prices to rise to an unhealthy and unsustainable pace. "Housing affordability remains a pressing issue with home-price growth increasing around four times the pace of wages," adds Yun. "Without meaningful gains in new and existing supply, there's no question the goalpost will move further away for many renters wanting to become homeowners."
Month-over-month performance was mixed by region but all four areas scored year-over-year growth. The index increased in the Northeast by 6.3 percent for the month and 10.6 percent on an annual basis while the Midwestwas down 0.6 percent from April but remained 7.8 percent above the May 2014 level.
Pending home sales in the South decreased 0.8 percent to an index of 127.8 in May but are still 10.6 percent above last May. The index in the West rose 2.2 percent in May to 104.5, and is 13.0 percent above a year ago.
Bloomberg said that solid momentum appears to be building inside of the housing market. "Today's report points to further strength for the existing home sales report which surged in data posted last week. Housing is getting a boost from the strong jobs market together perhaps with the prospect of rising mortgage rates which may be pushing buyers into the market."