Contracts to buy U.S. previously owned homes unexpectedly increased in May after declining for six straight months, but higher mortgage rates are cooling demand for housing.
The National Association of Realtors (NAR) said on Monday its Pending Home Sales Index, based on signed contracts, rose 0.7% last month to 99.9, rebounding from a two-year low in April. Pending home sales increased in the Northeast and the densely populated South, but fell in the West and Midwest.
Economists poll had forecast contracts, which become sales after a month or two, would drop 3.7%. Pending home sales plunged 13.6% in May on a year-on-year basis.
“Despite the small gain in pending sales from the prior month, the housing market is clearly undergoing a transition,” said NAR chief economist Lawrence Yun. “Contract signings are down sizably from a year ago because of much higher mortgage rates.”
Data last week showed sales of previously owned homes dropped for a fourth straight month in May, hitting a two-year low as prices topped the $400,000 mark for the first time. The median single-family home price surged 14.6% from a year ago to $414,200 in May.
The average contract rate on a 30-year fixed-rate mortgage increased last week to more than a 13-1/2-year high of 5.81%, from 5.78% in the prior week, according to data from mortgage finance agency Freddie Mac. The rate has risen more than 250 basis points since January as inflation expectations surged and the Federal Reserve’s aggressively hikes interest rates.
The NAR estimates that at the median single-family home price and with a 10% down payment, the monthly mortgage payment has risen by about $800 since the beginning of the year.