Elevated mortgage rates continued to curb homebuyer activity in May, NAR reported. As inventory increases in upcoming months, slower home price growth will follow, and likely more buyers hitting the market.
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Pending home sales dropped by 2.1 percent in May as homebuyers continued to resist higher mortgage rates, the National Association of Realtors (NAR) reported on Thursday.
The Pending Home Sales Index (PHSI) softened to 70.8 in May, and pending sales were down 6.6 percent year over year. An index of 100 represents the level of contract activity in 2001.
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Current market conditions suggested inventory should increase in upcoming months, leading to slower home price growth and potentially more buyers hitting the market, NAR Chief Economist Lawrence Yun said in a statement.
“The market is at an interesting point with rising inventory and lower demand,” Yun said. “Supply and demand movements suggest easing home price appreciation in upcoming months. Inevitably, more inventory in a job-creating economy will lead to greater homebuying, especially when mortgage rates descend.”
By region, the West PHSI was most resilient at 56.7, with the index up 1.4 percent month over month and down 2.1 percent from May 2023.
The Northeast PHSI increased 1.1 percent from the previous month to 63.6 and was down 2.3 percent on an annual basis.
In the Midwest, the index dropped by 0.4 percent to 70.4, which was down 5.6 percent from May 2023.
The South PHSI fell 5.5 percent month over month to 83.7, a 10.4 percent decline year over year.
The association also provided forecasts on several market metrics in upcoming years.
NAR reported that the association anticipates mortgage rates will stay elevated above 6 percent through 2025, even with cuts to the Fed Funds rate.
NAR expects existing-home sales to increase to 4.26 million in 2024, up from 4.09 million in 2023, and to 4.92 million in 2024. The association anticipates housing starts will increase to 1.382 million in 2024 and to 1.492 million in 2025.
The median existing-home sale price will likely hit a record high of $405,300 in 2024, NAR estimated, and rise to $412,000 in 2025. The median existing-home sale price in 2023 was $389,800. The association expects the median new home price to hit $434,100 in 2024 (up from $428,600 in 2023) and $441,200 in 2025.
“The first half of the year did not meet expectations regarding home sales but exceeded expectations related to home prices,” Yun said. “In the second half of 2024, look for moderately lower mortgage rates, higher home sales and stabilizing home prices.”
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