May Pending Home Sales Hit Highest Level Since 2005

Home sales are up as buyer demand stays strong amidst inflated prices.

Many people are wondering when the hot housing market will start to cool off. After all, home prices have soared on a national level, and at some point, buyers are apt to start pushing back.

But May's numbers indicate that this isn't about to happen anytime soon. Pending home sales, which measure the number of signed contracts on existing homes, rose 8% in May compared to April, according to the National Association of Realtors. That represents the highest level of sales activity for the month of May since 2005.

Pending home sales were also up 13% compared to May of 2020. Granted, at that stage of the pandemic, buyers weren't clamoring to purchase homes the way they are today. But this recent 8% uptick is significant nonetheless, especially since housing market experts were anticipating a 1% drop in pending home sales for May.

When will the market cool off?

In April, the S&P Case-Shiller National Home Price Index was up more than 14% year over year, which represents the largest gain in the index's 30-year history. But at some point, home prices are apt to get too high for their own good, and once that happens, they should plateau before starting to decline.

Still, it's hard to predict when that will happen. While higher home prices may be deterring some buyers from making offers, low mortgage rates are keeping buyers engaged.

Should you attempt to buy a home right now?

Buying a home in today's market is a mixed bag. What you gain via a lower mortgage rate, you might lose in the form of having to pay more for a home.

If you can comfortably afford a place of your own in an area you want to live in, then it pays to keep looking at listings and continue making offers on properties that meet your criteria and work for your budget. But if you find yourself growing increasingly frustrated with the real estate market by the day, then you may want to take a step back and consider pausing your home search for at least a few months.

A big reason home prices are so high is that housing inventory is at a low. Once more properties hit the real estate market, the ratio of demand relative to supply will shift in a more helpful direction, bringing home prices down.

That said, one of the things that may have contributed to higher pending home sales in May is a slight increase in housing supply compared to April. But even with that, the supply of available homes that month was still about 20% lower than it was a year prior.

All told, it's still a pretty tricky housing market to navigate. Taking a step back wouldn't be the worst thing to do, especially since mortgage rates are likely to remain competitive for the rest of the year and likely even beyond. And that way, you'll give yourself a chance to boost your cash reserves and give yourself more financial leeway to bid on upcoming homes that get listed.