Pending home sales decreased 3.7% to an index reading of 110.8 in May, after a revised 3.9% gain to 115.0 in April, according to a report released Wednesday by the National Association of Realtors.
Economists polled by Thomson Reuters predicted the index would be down 1.0%
The April increase was first reported as 5.1% to 116.3.
An index of 100 is equal to the average level of contract activity during 2001.
Year-over-year the pending homes sales index decreased 0.2% from last May, when the index was 111.0. This was the first time since August 2014 that there was a year-over-year drop, NAR said.
Regionally, pending sales were lower. The Northeast saw a 5.3% drop to 93.0, while sales fell 3.4% in the West to 102.6. In the South, sales slid 3.1% to 126.6, and sales were off 4.2% to 108.0 in the Midwest.
"With demand holding firm this spring and homes selling even faster than a year ago, the notable increase in closings in recent months took a dent out of what was available for sale in May and ultimately dragged down contract activity," NAR Chief Economist Lawrence Yun said. "Realtors are acknowledging with increasing frequency lately that buyers continue to be frustrated by the tense competition and lack of affordable homes for sale in their market."
While mortgage rates remain low, housing prices have increased while supply remains low. "Total housing inventory at the end of each month has remarkably decreased year-over-year now for an entire year," adds Yun. "There are simply not enough homes coming onto the market to catch up with demand and to keep prices more in line with inflation and wage growth."
As for Brexit, it gives as well as takes. "In the short term, volatility in the financial markets could very likely lead to even lower mortgage rates and increased demand from foreign buyers looking for a safer place to invest their cash," he said. "On the other hand, any prolonged market angst and further economic uncertainty overseas could negatively impact our economy and end up tempering the overall appetite for homebuying."
