Pending home sales rose sharply in May, with lower mortgage rates and increased inventory accelerating the market, according to the National Association of Realtors (NAR). All four regions of the country saw increases in pending sales, with the Northeast and West experiencing the largest gains.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, increased 6.1% to 103.9 in May from 97.9 in April, but still remains 5.2% below May 2013 (109.6). May’s 6.1% increase was the largest month-over-month gain since April 2010 (9.6%), when first-time home buyers rushed to sign purchase contracts before a popular tax credit program ended.

Lawrence Yun, NAR chief economist, expects improving home sales in the second half of the year. “Sales should exceed an annual pace of five million homes in some of the upcoming months behind favorable mortgage rates, more inventory and improved job creation,” he said. “However, second-half sales growth won’t be enough to compensate for the sluggish first quarter and will likely fall below last year’s total.” 

Despite the positive gains in signed contracts last month, Yun cautions that affordability and access to credit is still an area of concern for first-time home buyers, who accounted for only 27% of existing-home sales1 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% 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.”  

The PHSI in the Northeast jumped 8.8% to 86.3 in May, and is now .2% above a year ago. In the Midwest the index rose 6.3% to 105.4 in May, but is still 6.6% below May 2013.

Pending home sales in the South advanced 4.4% to an index of 117.0 in May, and is 2.9% below a year ago. The index in the West rose 7.6% in May to 95.4, but remains 11.1% below May 2013.

Yun expects existing-homes sales to be down 2.8% this year to 4.95 million, compared to 5.1 million sales of existing homes in 2013. The national median existing-home price is projected to grow between 5 and 6% this year and in the range of 4 to 5% in 2015.

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