Pending home sales increased by 44.3% in May as homebuyers reemerge and return to the market, according to the National Association of Realtors.
This is considered the biggest one-month rise in the history of the survey, which dates back to 2001. It defeated expectations of a 15% gain. Sales remained 5.1% lower compared with May 2019.
Pending sales measure signed contracts on current homes, so it signifies that homebuyers were out looking throughout the month of May. Sales dropped by 22% for the month in April, as economic activities were put to a halt to contain the spread of the coronavirus.
“This has been a spectacular recovery for contract signings, and goes to show the resiliency of American consumers and their evergreen desire for homeownership,” said Lawrence Yun, NAR’s chief economist. “This bounce back also speaks to how the housing sector could lead the way for a broader economic recovery.”
However, Yun noted that the market still needs more supply. “Still, more home construction is needed to counter the persistent underproduction of homes over the past decade.”
The existing homes for sale at the end of May recorded 19% lower annually, based on NAR’s data. Single-family housing starts in May did not show strong performance, although building permits, a factor that indicates future construction, did have steam.
The supply of homes remained low, but there are improvements in some markets. Active listings rose by over 10% for the month in Denver and Colorado Springs, San Francisco, California, as well as Honolulu.
Homebuyers returned to the market despite restrictions on open houses in several states. Real estate agents conduct virtual tours and individual tours of empty homes, where customers can use a lock box and tour the homes themselves. Some homebuyers are closing contracts on homes they have never even entered physically.
Rock-bottom mortgage rates also encourage consumers in a market that is still expensive due to high demand. Sales of newly built homes rose by nearly 17% in May, compared with April, and were 13% higher than May 2019, according to the US Census.
Builders reported strong demand from people wanting to stay way from densely populated urban areas. There is also a shortage of existing homes for sale.
“Sales of homes not yet under construction are rising given capacity limitations in the building industry,” said Robert Dietz, chief economist at the National Association of Home Builders.
“Due to labor and land constraints, homebuilders were already producing too few single-family homes given potential demand. As housing demand has picked up in recent weeks, builders have shifted sales to homes not yet under construction – a 20% year-over-year gain for such sales,” he added.
“Emerging virus hot spots in the South and West could derail the improving trend,” said Danielle Hale, chief economist for realtor.com. “For now, demand remains resilient, but we’re watching the new listings trend as it’s a good indicator of what’s ahead for home sales.”
Regionally, pending home sales in the Northeast increased by 44.4% for the month but declined by 33.2% from a year ago. In the Midwest, sales increased by 37.2% monthly and declined by 1.4% annually.
Pending home sales in the South rose by 43.3% month-to-month and went higher by 1.9% from May 2019. In the West sales rose by 56.2% monthly and were 2.5% lower annually.