Pending home sales slowed more than expected in May, plunging 30.0% to a seasonally adjusted reading of 77.6 from 110.9 in April, according to a report released Thursday by the National Association of Realtors.
The index measures contract-signing activity for existing homes, making it a leading indicator for housing market resales. Its baseline reading of 100 reflects the average level of contract signing activity in 2001.
Contract signings were expected to slow in May due to expiration of a federal subsidy for new home purchases on April 30, according to Michael Moran, chief economist at Daiwa Securities America Inc. The median estimate in a Thomson Reuters’ poll of economists forecast a 10.0% decline in pending home sales to a level of 99.8.
“We were struck by the magnitude of the drop,” Moran wrote in a research note. “The results suggest hesitancy to purchase homes despite low interest rates and some improvement in the job market.”
Pending home sales in May were 15.9% less than the same month a year ago. The decline follows a revised 6.0% increase in April.
Pending home sales fell at least 20% in May in every region. The Northeast saw a 31.6% decrease in activity to a level of 67.0. Sales fell 32.1% to 70.8 in the Midwest, 33.3% to 82.5 in the South and 20.9% to 85.3 in the West.
The pending sales report echoes the 32.7% decline recorded in May for new home sales, which also measure contract signings. New home sales plunged to a record low of 300,000 at a seasonally adjusted annual rate, according to a June 23 report from the Commerce Department.
Lawrence Yun, chief economist for the National Association of Realtors, predicted that the expiration of the tax credit will produce more aggressive price negotiations. He indicated that the future of the housing market hinges on job creation because a new job often necessitates a home sale and purchase.
“If jobs come back as expected, the pace of home sales should pick up later this year,” Yun wrote in a prepared statement.
