Pending home sales bounced back in May from a dip the previous month, a sign that home buyers are returning to the market as lower borrowing costs improve affordability. Three of the four major U.S. regions saw an increase in pending home sales last month, the National Association of REALTORS® reported Thursday.
NAR’s Pending Home Sales Index, a forward-looking indicator based on contract signings, rose 1.1% to a reading of 105.4 in May. Year over year, however, contract signings are down 0.7%. “Rates of 4%—and, in some cases, even lower—create extremely attractive conditions for consumers,” says NAR Chief Economist Lawrence Yun. “Buyers, for good reason, are anxious to purchase and lock in at these rates.”
Consumer confidence about home buying is increasing, which likely will translate to more sales over the coming weeks, Yun says. “The Federal Reserve may cut interest rates one more time this year, but there is no guarantee mortgage rates will fall from these already historically low points,” Yun says. “Job creation and a rise in inventory will nonetheless drive more buyers to enter the market.”
The need for more inventory is only growing greater, Yun says. “Home builders have not ramped up construction to the extent that is needed,” he says. “Homes are selling swiftly, and more construction will help keep home prices manageable and, thereby, allow more middle-class families to attain ownership opportunities.”