Sale of pending homes in the United States saw a steep rise in May. It was coupled with lower mortgage rates and increased inventory speeding up the market.
The latest data from the National Association of Realtors showed that all four U.S. regions witnessed an increase in pending sales. However, the Northeast and West experienced the largest gains.
The Pending Home Sales Index, a forward looking indicator based on contract signings, increased 6.1 percent to 103.9 in May from 97.9 in April, but still remains 5.2% below May 2013 when it was 109.6.
Increase of 6.1 percent in May was the largest month on month gain since April 2010.
Lawrence Yun, NAR chief economist, said he expects home sales to continue increase in the second half of the year. "Sales should exceed an annual pace of five million homes in some of the upcoming months behind favourable mortgage rates, more inventory and improved job creation. However, second half year sales growth won't be enough to compensate for the sluggish first quarter and will likely fall below last year's total," he explained.
Despite the positive gains in signed contracts last month, Yun said that affordability and access to credit is still an area of concern for first time buyers, who accounted for only 27 percent of existing home sales in May and typically carry student loan debt and lower credit scores.
"The flourishing stock market the last few years has propelled sales in the higher price brackets, while sales for homes under $250,000 are 10% behind last year's pace. Meanwhile, apartment rents are expected to rise 8 percent cumulatively over the next two years because of tight availability," said Yun.
"Solid income growth and a slight easing in underwriting standards are needed to encourage first time buyer participation, especially as renting becomes less affordable," he noted.
The PHSI in the Northeast rose from 8.8 percent to 86.3 in May. In the Midwest the index rose 6.3 percent to 105.4 in May. The South pending homes sales increased 4.4 percent to an index of 117.0 in May. The index in the West rose 7.6 percent in May to 95.4, but remains 11.1% below May 2013.
The national average existing home price is forecasted to grow between 5 percent and 6 percent this year and in the range of 4 percent to 5 percent in 2015.
