California, Bay Area Pending Home Sales Drop Again in May
- U.S. pending home sales dropped for the third straight month in May, the result of limited inventory and inflated prices.
- California pending home sales dipped for the fifth straight month, which suggests a slowing market in the short term.
- Bay Area pending home sales were down for the eighth consecutive month, with activity in San Francisco down by double-digit-percentage points from one year earlier.
Pending home sales continued to fall nationwide, statewide, and in the Bay Area last month, an early sign that housing markets may be in for a slower-than-usual summer.
The National Association of Realtors’ latest Pending Home Sales Index fell to 108.5 in May, a year-over-year decline of 1.7 percent. According to NAR Chief Economist Lawrence Yun, inventory shortages are at least partially to blame for the recent downward trend in pending sales.
“Monthly closings have recently been oscillating back and forth, but this third consecutive decline in contract activity implies a possible topping off in sales,” Yun said. “Buyer interest is solid, but there is just not enough supply to satisfy demand. Prospective buyers are being sidelined by both limited choices and home prices that are climbing too fast.”
Golden State pending home sales slid for the fifth consecutive month in May, according to the most recent numbers from the California Association of Realtors. The state’s PHSI dipped to 118.1, an annual decline of 3.9 percent. Although May home sales increased on a monthly and yearly basis in California and every major region of the state, CAR said that the continued declines in pending sales may cause the housing market to underperform over the next several months.
Bay Area pending home sales also continued their skid, dropping by 5.5 percent year over year, the eighth consecutive month of annual declines. San Francisco saw the largest drop of any of the 12 individual counties for which CAR publishes data, down by 10.8 percent from last May. Pending sales in Santa Clara and San Mateo counties dropped by a respective 2.4 percent and 0.7 percent, with the declines driven by both seven-digit home prices and extremely tight supply conditions.
A lack of inventory remains California real estate professionals’ biggest concern, cited by 41 percent of respondents to CAR’s monthly Market Pulse survey. Twenty-three percent of those polled are concerned about rising interest rates and their impact on affordability, while 21 percent are worried about a housing bubble.
Inventory shortages should continue to propel home prices in the coming months according to CAR’s Market Velocity indicator, which tracks home sales against the number of listings coming on the market. CAR expects the state’s median home price to remain near its recent high until late summer or early autumn. The median sales price for a single-family home in California climbed to $550,200 in May, the highest in nearly 10 years.