economist for the National Association of Realtors® (NAR), predicted last month
that April’s home sales contract activity “will
be the lowest point for pending sales.” That turns out to have been a huge understatement–at least for now.
This morning’s release of NAR’s
Pending Home Sales Index (PHSI) showed the number of those contracts for purchasing
existing single-family houses, condos, townhomes, and cooperative apartments did
indeed explode in May, soaring by 44.3 percent to 99.6. It was the greatest
single month increase since NAR started tracking pending sales in 2001. Every
major region recorded an increase in month-over-month activity, while the South
also had a year-over-year increase in pending transactions.
The PHSI had suffered two straight
months of declines as the corona virus shut down businesses and left Americans
sheltering in place. It fell by 21.8 percent in April, the largest single month
plunge on record, coming on top of a 20.8 percent loss in March. This left the Index
at 69.0, 33.8 percent lower than in May 2019. Even with the May surge, pending
sales are down 5.1 percent year-over-year.
Yun said, “This has been a spectacular recovery for contract
signings, and goes to show the resiliency of American consumers and their
evergreen desire for homeownership. This
bounce back also speaks to how the housing sector could lead the way for a
broader economic recovery.”
“More listings are continuously
appearing as the economy reopens, helping with inventory choices,” Yun said.
“Still, more home construction is needed to counter the persistent
underproduction of homes over the past decade.”
Yun was not alone in expecting a recovery
last month although none of the analysts polled by Econoday had guessed
at its degree. They forecasted within a range of a 6.8 to 25.0 percent increase
with a consensus of 11.3 percent.
The PHSI is a leading indicator. It
is expected to correlate with sales of existing homes over the following one to
Yun continued, “The outlook has
significantly improved, as new home sales are expected to be
higher this year than last, and annual existing-home
sales are now projected to be down by less than 10 percent – even after
missing the spring buying season due to the pandemic lockdown.”
NAR now predicts existing home sales
will reach 4.93 million units in 2020 and new
home sales to hit 690,000. “All figures light up in 2021 with positive GDP,
employment, housing starts and home sales.” Yun noted that in 2021, sales are
forecast to rise to 5.35 million units for existing homes and 800,000 for new
Pending home sales in the South
increased 43.3 percent to 125.5 besting last year’s May index by 1.9 percent.
The West posted the largest gain, 56.2 percent to 89.2, but remains 2.5 percent
lower on an annual basis.
Last month, after Yun declared April
would be the low spot for pending home sales, he added, “and subsequently May
will mark the bottom for closed sales of existing homes.” We shall see.
Existing home sales for June will be reported on July 22.
The PHSI is based on a large
national sample, typically representing about 20 percent of transactions for
existing-home sales. 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 is equal to 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