Pending home sales soared in May after two down months due to the COVID-19 pandemic, reinforcing many observers’ confidence about the housing market’s resilience and role in the country’s economic revival.
The Pending Home Sales Index (PHSI), a metric based on contract signings developed by the National Association of Realtors (NAR), surged 44.3% to a reading of 99.6 in May. While contract signings dropped year over year 5.1%, the massive monthly jump is the highest month-over-month gain in the index’s history, going back to its inception in January of 2001.
“This has been a spectacular recovery for contract signings, and goes to show the resiliency of American consumers and their evergreen desire for homeownership,” said Lawrence Yun, NAR’s chief economist. “This bounce-back also speaks to how the housing sector could lead the way for a broader economic recovery.”
All four of the NAR’s regional pending sales indices saw month-over-month improvement. The PHSI posted the biggest monthly gain in the West, where May’s index reading soared 56.2% to 89.2. In the Northeast, the index jumped 44.4% to a reading of 61.5 in May. The South region saw an increase of 43.3% month over month to an index reading of 125.5, while in the Midwest, the index rose 37.2% to a reading of 98.8. The Northeast’s index remained heavily down on an annual basis, registering 33.2% below last year’s May reading. The West and Midwest were down 2.5% and 1.4%, respectively, while the South’s market continued to show strength, with a May reading 1.9% higher than the same month last year.
Yun also noted that while more home construction is needed given the market’s continual undersupply, the number of listings is improving as the country reopens. Active listings were up by more than 10% in many large metros, including Honolulu; San Francisco; Denver; San Jose, California; and Colorado Springs, Colorado.
The NAR updated its full-year forecast to reflect the new developments, now projecting existing-home sales to reach 4.93 million units in 2020, with new home sales predicted at 690,000 units.
“The outlook has significantly improved, as new home sales are expected to be higher this year than last,” Yun said, “and annual existing-home sales are now projected to be down by less than 10% – even after missing the spring buying season due to the pandemic lockdown.”
Yun added that “all figures ‘light up’ in 2021, with positive GDP, employment, housing starts and home sales.” The NAR forecast calls for 5.35 million existing-home units sold next year, along with 800,000 new homes.