Signed Contracts for Home Purchases Still Rising, But Home Affordability is Shrinking

Home sales could be off to their best year since the housing and economic downturn, with May marking the fifth straight month that contract signings have climbed, according to the National Association of Realtors.
The Realtor’s Pending Home Sales Index, which is based on contract signings, climbed 0.9 percent to 112.6 in May from a slight downward revision of 111.6 in April and is now 10.4 percent above May 2014 (101.9).

The index has now increased year-over-year for nine consecutive months and is at its highest level since April 2006 (113.7).
“The steady pace of solid job creation seen now for over a year has given the housing market a boost this spring,” said Lawrence Yun, NAR 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.”
However, Yun warns that this year’s stronger sales — coming with similarly tight housing supplies from a year ago — have caused 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,” said Yun. “Without meaningful gains in new and existing supply, there’s no question the goal post will move further away for many renters wanting to become homeowners.”
The Pending Home Sales Index in the Northeast increased 6.3 percent to 93.9 in May, and is now 10.6 percent above a year ago. In the Midwest, the index declined 0.6 percent to 111.4 in May, but is still 7.8 percent above May 2014.
Pending home sales in the South decreased 0.8 percent to an index of 127.8 in Ma,y but are still 10.6 percent above last May. The index in the West rose 2.2 percent in May to 104.5, and is 13.0 percent above a year ago.

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