The figures: Last month, more Americans signed on the dotted line to buy a home, but the factors that have put the country’s housing market to the test are expected to eat into sales in the months ahead. The National Association of Realtors said Wednesday that pending home sales increased by 8% in May compared to April. MarketWatch polled economists, who predicted a 1% decline in pending home sales in May.

In comparison to a year earlier, pending house sales were up 13.1 percent, while home sales activity had dropped because to the COVID-19 epidemic at the time. “May’s big gain in transactions – following April’s dip, as well as a sharp loss in home affordability – was a complete surprise,” said Lawrence Yun, the National Association of Realtors’ senior economist. “The property market is luring purchasers thanks to lower mortgage rates, which have dropped below 3%, and an increase in listings.” The pending house sales index measures real estate transactions in which a contract for a previously owned home was signed but the sale has not yet closed, and is based on contract signing activity in 2001. What happened was this: Sales increased in all regions, with the Northeast leading the way with a 15.5 percent increase. With a 4.9 percent increase, the South recorded the smallest increase. The larger picture: Yun stated that the increase in pending sales might be sustained due to the strong stock market and rising property prices. More homes will be listed in the second half of the year, he predicts, helping to moderate the rate of home price growth. Nonetheless, economists foresee a slowdown in real-estate sales in the second half of 2021. Look no further than mortgage application data to get a sense of where home sales are headed. In a research note, Ian Shepherdson, chief economist at Pantheon Macroeconomics, said, “Sales follow mortgage applications, and the 26 percent drop in the latter between December and April is now working its way through the sales numbers.” He went on to say that, “given the flatness in mortgage demand over the last two months,” “sales will shortly touch bottom.” That projection is backed up by the Mortgage Bankers Association’s most recent mortgage application data. As of the week ending June 25, the trade group’s index, which monitors the volume of loan applications for home purchases, was down 17 percent from a year earlier and down 6% from the previous week. The loan application statistics also revealed the difficulties that buyers face, which are preventing sales from continuing at the fast speed of the previous year. According to Mike Fratantoni, chief economist at the Mortgage Bankers Association, “the average loan size for total purchase applications increased, indicating that first-time homebuyers, who typically get smaller loans, are likely being squeezed out of the market due to the lack of entry-level homes for sale.” The scarcity of housing inventory has reduced the number of sales that may take place while simultaneously driving up property prices. Many home buyers may be forced out of the market now that mortgage rates are rising again, as acquiring a home becomes increasingly unaffordable. “We expect existing house sales will face significantly tougher year-over-year comparisons for the remainder of the year, as the base for comparison moves away from the downturn created in the early months of the epidemic and toward the increase in home sales that followed,” they add. We are likely to see sales start moving toward single digit year-over-year growth and possibly some year-over-year declines in Q4, due to last year’s divergence from normal seasonal patterns, due to the pressure on sales from a lack of inventory and rapidly rising prices,” said Ruben Gonzalez, Keller Williams’ chief economist. “A larger increase in supply is key to rebalancing the real estate market,” said George Ratiu, senior economist at Realtor.com. “Although we are beginning to see an improvement in the supply of existing homes for sale and the cost of building materials moderate, which should lead to more new construction, a larger increase in supply is key to rebalancing the real estate market,” said Ratiu. Reaction of the market: The Dow Jones Industrial Average DJIA, +0.39%, and the S&P 500 SPX, +0.09%, were both slightly higher in early Wednesday trading ahead of the report’s release./nRead More