The bidding wars on houses began slowing down in May. It’s being caused by a combination of a shortage of supply and too high of prices. Pending home sales fell 3.7 percent between April and May according to the National Association of Realtors®. Sales are also down from a year ago.
Another reason that pending sales were slower in May is that they hit the highest level in a decade just a month earlier in April. Despite the slip, the NAR predicts existing home sales will hit about 5.4 million by the end of 2016, a 3.7% rise from 2015. Prices are expected to be up between 4% and 5% over last year.
It’s become an unpredictable market because buyers are anxious to make offers but sellers are hesitant because they can’t find replacement homes and mortgagees are difficult to come by for both. Monthly pending sales dipped in every region of the country in May.
In the Midwest, yet to be closed purchases dropped 4.2% from April to May, according to the report. There were also 1.8% fewer than a year ago. In the West, they were down 3.4% from April and 0.1% from the same time a year ago. In the Northeast, pending sales were down 5.3% from April. However, they were about the same as a year ago.
The only (slightly) bright spot was the South. Pending sales still slid 3.1% from April. But they were up 0.6% from May of 2015.
One of the reasons for the better results in the south are retiring baby boomers that are moving to better climates. They tend to be selling fully paid for houses in the north for more than can make purchases for in the south.
Additionally, there is more building of new homes going on in the south. More inventory means lower prices. You get more home for you money in the south and taxes are lower.
“People are buying homes as long as there are homes on the market” to buy, says Javier Vivas, an economic researcher at realtor.com. But “the current levels of home supply are simply not enough to quench demand.”
The bottom line is there are fewer homes in the pipeline and sales are almost certain to continue downward.
There is a potential for more buyers to enter the market to take advantage of lower mortgage rates, NAR Chief Economist Lawrence Yun said in a statement. But the difficulty of qualifying for these mortgages is so low that it’s not likely to happen with any substantial impact.
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Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for 10 years. He also draws upon 30 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest. With the Pacific Ocean a couple of miles in the opposite direction.