Pending home sales in May posted the largest monthly increase since the expiration of the first-time home buyer tax credit in April 2010. The Pending Home Sales Index (PHSI), a forward-looking indicator based on signed contracts reported by the National Association of Realtors (NAR), increased 6.1% in May to 103.9 from an upwardly revised April level of 97.9. It is important to note that the May reading was down 5.2% on a year-over-year basis.
The May PHSI increased in all regions, ranging from 8.8% in the Northeast to 4.4% in the South. Year-over-year, however, only the Northeast posted a small increase of 0.2%. The three remaining regions all fell on a year-over-year basis ranging from a 2.9% decrease in the South to an 11.1% decrease in the West.
Last week, Census reported an 18.6% increase in May new home sales, and NAR reported a 4.9% increase in May existing home sales. The May increase in the PHSI suggests that the existing home market will continue to improve this summer as the market recovers from a disappointing winter period. The growth in household formations and strong pent-up demand will maintain that momentum throughout this year.