American agreements to buy existing-home sales improved better-than-expected, but still trended lower. The National Association of Realtors (NAR) Pending Home Sales Index (PHSI) made a small improvement in May. However, pending home sales, a leading indicator of future home sales, is way below last year. NAR expects this trend to continue, forecasting existing-home sales will slide through 2023.
Pending Home Sales Are Better Than Expected, But Still Falling
Pending home sales are agreements to purchase a home that have yet to close. They’re considered a future indicator of buying activity, since it’s an early gauge. The PHSI climbed 0.7% in May, but is still down 13.6% from last year. A small increase in the month, but a big drop from last year. A small monthly bump higher is just noise in this case, with the gap between last year expanding.
Higher monthly sales also appear to be due to unusually low volumes in the Northeast. In April, the region saw a stronger-than-normal drop in pending home sales. That came back up in May, pushing the volume back above trend. However, year-over-year declines are expanding and confirming a slowdown.
Existing-Home Sales Are Forecast To Slow Further As Rates Rise
Slowing home sales isn’t surprising anyone at NAR, who’s forecasting fewer sales. Their forecast shows existing-home sales making a year-over-year drop of 4.7% in Q2 2022. It’s then followed by a decline of 13.0% in the following quarter, with negative annual growth through 2023. Higher rates to cool inflation is the primary reason for the anticipated slowdown.
Pending home sales have seen a small improvement from last month, but are still falling. As rates climb, the industry is forecasting existing-home sale volumes will slow further. Reduced activity has so far led to little relief when it comes to home prices, but with healthier levels of inventory, that can change fast.