Fewer buyers signed contracts to buy existing homes in May,
likely because they can't find or afford what they want.
The pending home sales index from the National Association of
Realtors dropped 0.8 percent month to month and is now 1.7
percent lower than May 2016. Expectations had been for a slight
gain, but even April's reading was revised lower.
"Monthly closings have recently been oscillating back and
forth, but this third consecutive decline in contract activity
implies a possible topping off in sales," said Lawrence Yun,
chief economist of the Realtors. "Buyer interest is solid, but
there is just not enough supply to satisfy demand. Prospective
buyers are being sidelined by both limited choices and home
prices that are climbing too fast."
The number of home sales that closed this spring was slightly
higher than a year ago, but the lack of listings clearly held
the market back. The supply of homes for sale at the end of May
was down more than 8 percent from a year ago, and homes that
were listed sold at the fastest rate on record.
The tight supply is pushing home prices higher, considerably
faster than income growth. Low mortgage rates have not been much
help in offsetting these big price gains, and in fact may be
exacerbating the problem, especially if rates begin to rise as
is widely expected.
The inventory crisis is worst on the low end of the market,
where demand is highest. The number of starter and trade-up
homes currently on the market is down 15.6 percent and 13
percent, respectively, compared with a year ago, according to
Trulia, a real estate website. The inventory of premium homes
has fallen 3.9 percent.
The supply situation has buyer confidence in the housing
market dropping. Just over half of renters say they think now is
a good time to buy, according to the Realtors. That is down from
62 percent one year ago. While about 80 percent of current
homeowners think now is a good time to buy, they are not listing
their homes for sale. This may have more to do with weakening
affordability than anything else. They don't want to sell if
they can't afford a move-up home.