What the May pending home sales data shows
Pending home sales ticked up in May, against a backdrop of softening list prices and increased seller price cuts. Pending sales, or contract signings, increased 1.8% compared with last month and 1.1% on a year-over-year basis, according to data from the National Association of Realtors®. All four U.S. regions saw month-over-month increases; on an annual basis, pending home sales increased in the Midwest (+2.6%) and South (+2%), but declined in the Northeast (-0.5%) and West (-1.2%).
Hindered by still-high mortgage rates and the lock-in effect, the spring homebuying season has been off to a slow start, with homes sitting on the market longer and total inventory surpassing 1 million homes for the first time since sinter 2019. As a result, though, buyers are regaining some negotiating power, with price cuts reported on 19.1% of listings in May—the highest share for any May since at least July 2016 when Realtor.com tracking began. On one hand, May’s pending home sale increase could be a sign of buyers finally beginning to get off the sidelines as the market balances. On the other hand, interest rates have been steadily rising throughout the spring homebuying season, and with the Federal Reserve holding steady, this could continue into the summer months.
What this means for buyers, sellers, and the housing market
Pending home sales, or contract signings, measure the first formal step in the home sale transaction, namely, the point when a buyer and seller have agreed on the price and terms. Pending home sales tend to lead existing-home sales by roughly one to two months and are a good indicator of market conditions. Existing-home sales fell by 0.7% year over year in May as buyers continued to struggle with high home prices and mortgage rates. However, as inventory grows and sellers continue to cut prices, patient buyers are poised to gain options and purchasing power in the coming months.