Pending home sales spike a record 44.3% in May, as homebuyers rush back into the market

Pending home sales spiked a stunning 44.3% in May compared with April, according to the National Association of Realtors.

That is the largest one-month jump in the history of the survey, which dates to 2001. It beat expectations of a 15% gain. Sales were still 5.1% lower compared with May 2019, however.

Pending sales measure signed contracts on existing homes, so it shows that buyers were out shopping during the month of May. Sales had fallen 22% for the month in April, as the economy shut down to slow 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.”

The market, however, still needs more supply, Yun noted. “Still, more home construction is needed to counter the persistent underproduction of homes over the past decade.”

The supply of existing homes for sale at the end of May was nearly 19% lower annually, according to the NAR. Single-family housing starts in May were not as strong as expected, although building permits, a measure of future construction, did gain some steam.

The supply of homes is still extremely low, but is improving in some markets. Active listings were up by more than 10% for the month in San Francisco, Denver and Colorado Springs, as well as Honolulu.

Buyers came back to the market despite restrictions on open houses in many states. Real estate agents are offering virtual tours as well as individual tours of empty homes, where buyers can open a lockbox and tour the homes themselves. Some buyers are signing contracts on homes they’ve never even entered physically. 

Rock-bottom mortgage rates are also helping buyers in a market that remains pricey due to high demand. The average rate on the 30-year fixed mortgage started May around 3.20%, according to Mortgage News Daily. By the start of June it was falling below 3%.

Sales of newly built homes, which are also measured by signed contracts, jumped nearly 17% in May, compared with April, and were 13% higher than May 2019, according to the U.S. Census. Builders have been seeing strong demand from buyers looking to leave densely populated urban areas. They are also benefiting from the shortage of existing homes for sale.

While the recovery was swift in May, the future is not exactly set, especially given the latest spikes in cases of Covid-19.

“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 rose 44.4% for the month but were down 33.2% from a year ago. In the Midwest, sales rose 37.2% monthly and were down 1.4% annually.

Pending home sales in the South increased 43.3% month-to-month and were up 1.9% from May 2019. In the West sales jumped 56.2% monthly and were 2.5% lower annually.