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Contracts to buy homes reach 9-year high

New-home sales hit a 7-year high in May.

Pending home sales continued to make gains last month, rising to the highest level since April 2006, according to the National Association of REALTORS' Pending Home Sales Index, a forward-looking indicator based on contract signings.

Large gains in pending home sales in the Northeast and West helped to offset small decreases in the Midwest and South.

NAR's Pending Home Sales Index rose 0.9 percent in May to 112.6 in May. The index is at its highest level since April 2006, when it was 113.7.

"The steady pace of solid job creation seen now for over a year has given the housing market a boost this spring," says Lawrence Yun, NAR's chief economist. "It's very encouraging to now see a broad based recovery with all four major regions showing solid gains from a year ago and new home sales also coming alive."

Yun says this year's strong sales are causing home prices to rise to an "unhealthy and unsustainable pace."

"Housing affordability remains a pressing issue with home-price growth increasing around four times the pace of wages," says Yun. "Without meaningful gains in new and existing supply, there's no question the goalpost will move further away for many renters wanting to become home owners."

Here's a closer look at how the Pending Home Sales Index performed regionally in May:

  • Northeast: rose 6.3 percent to 93.9 last month and is 10.6 percent above a year ago.
  • Midwest: fell 0.6 percent to 111.4 but remains 7.8 percent above year ago levels.
  • South: dropped 0.8 percent to 127.8 but are still 10.6 percent above last May.
  • West: rose 2.2 percent to 104.5 in May and are 13 percent above a year ago.

New-home sales hit 7-year high

New-home sales surged to the highest rate since February 2008, as the new-construction market continues to gain ground this year. Sales of newly built single-family homes increased 2.2 percent, reaching a seasonally adjusted annual rate of 546,000 units in May, according to a report from the Commerce Department.

"Our builders are seeing motivated buyers and the release of pent-up housing demand," says Tom Woods, chairman of the National Association of Home Builders. "However, builders are facing supply-chain challenges, which is affecting the inventory of new homes."

Sales are nearly 20 percent higher than the pace in May 2014. New-home inventories remain tight at 206,000, a 4.5-month supply at the current sales pace. That's pushed the average sales price of a new home sold in May to $337,000. 

"This month's new-home sales report is consistent with other government data and rising builder confidence that indicate a continual recovery of the housing market," says David Crowe, NAHB’s chief economist. 

Regionally, new-home sales were mixed in May. They rose 87.5 percent month-over-month in the Northeast and had a 13.1 percent boost in the West. However, new-home sales dropped 5.7 percent in the Midwest and 4.3 percent in the South.

Source: National Association of REALTORS

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