A gauge of U.S. pending home sales unexpectedly rose in May for the first time in seven months, a mere respite in an otherwise downward trend for housing as mortgage rates climb.
The National Association of Realtors’ index of pending home sales increased 0.7% from a month earlier to 99.9, according to data released Monday. An index of 100 is equal to the level of contract activity in 2001. Economists in a Bloomberg survey called for a 4% drop, per the median forecast.
Compared with a year earlier, contract signings were down by 12% on an unadjusted basis.
The NAR noted that at the median single-family home price and with a 10% down payment, the monthly mortgage payment has increased by about $800 since the beginning of the year.
“Despite the small gain in pending sales from the prior month, the housing market is clearly undergoing a transition,” NAR’s chief economist Lawrence Yun said in a statement.
Mortgage rates are hovering near the highest since 2008, compounding affordability challenges on top of high housing prices. While rising rates are expected to make borrowing costs even more expensive, that could temper demand for homes and potentially ease price pressures.
That’s the expectation of Federal Reserve Chair Jerome Powell, who told Congress last week the housing market is slowing down and home prices could flatten “fairly quickly.” The Fed is raising interest rates to cool demand broadly in the economy, including for housing, to tame decades-high inflation.
By region, contract signings in the Northeast and South rose, while those in the Midwest and West declined, NAR said. All four areas were down from a year ago.
The pending home sales index is based on contract signings, rather than when a contract closes like existing-home sales. Previously owned home sales fell for a fourth month in May, receding to the lowest level in nearly two years.