Pending home sales up in MayDate posted: 6/20/14 07:30:00 AM
All four regions in the United States posted growing totals of pending home sales in May, according to the National Association of Realtors (NAR). The largest gains were seen in the Northeast and West. NAR reported that an increase in inventory paired with lower mortgage rates helped bring about the May trends.
Lawrence Yun, chief economist for NAR, believes that the number of home sales will continue to soar in the second half of 2014.
"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," Yun 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."
The Pending Home Sales Index, which is an industry indicator that uses contract signings to portray the market, surged to 103.9 in May from 97.9 in April, a 6.1 percent improvement. Despite that month-to-month growth, the Pending Home Sales Index is still 5.2 percent below its May 2013 total of 109.6.
The 6.1 percent increase was the top monthly gain since April 2010 recorded a 9.6 percent jump from the month prior, which was when first-time homebuyers flooded the market to sign contracts before a popular tax credit program concluded.
Yun tells Americans to be cautious
Regardless of the nation's recent positive gains in the housing market, Yun is warning the housing sector to avoid growing too optimistic. Yun said access to credit and affordability issues are still a major concern for first-time homebuyers.
First-time buyers are often younger, with student loan debt and lower credit scores than older, more established buyers. First-time homebuyers accounted for only 27 percent of existing-home sales in May, according to NAR.
"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 percent behind last year's pace," Yun said. "Meanwhile, apartment rents are expected to rise eight percent cumulatively over the next two years because of tight availability. Solid income growth and a slight easing in underwriting standards are needed to encourage first-time buyer participation, especially as renting becomes less affordable."
A report from CoreLogic backs Yun's claim.
In 1980, the homeownership rate for 25- to 34-year-old Baby Boomers was 51.6 percent. In 2012, millennials in the same age range posted a homeownership rate of 37.9 percent.
CoreLogic stated that a rise in educational attainment paired with the impact and residual effects of the Great Recession has slowed millennials from many major life events. Marriage and homeownership are where millennials seem to be holding off.
In 2013, only 26 percent of millennials between 25 and 34 years old were married, which is down from 36 percent of Generation X and 48 percent of Baby Boomers when they were the same age. Conversely, millennials were 10 percent more likely to have a bachelor's degree in 2013 compared to Baby Boomers of the same age.
Sales by region
The Pending Home Sales Index showed that the Northeast had the best gains, climbing 8.8 percent from April to May. The West index increased 7.6 percent, but where the Northeast is now 0.2 percent ahead of a year prior, the West is still 11.1 percent below numbers from May 2013.
The Midwest is in a similar situation as the West. In the heart of the country, pending home sales improved 6.3 percent, yet still trail May 2013 numbers by 6.6 percent.
Pending home sales in the South improved 4.4 percent in May, bringing its index total to 2.9 percent below the numbers from a year prior.
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