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Pending sales of existing homes rose unexpectedly in May, offering renewed hope for a stronger summer in the housing market following a weak spring.
The Pending Home Sales Index, based on signed contracts for existing homes, rose 1.8% last month from April, the National Association of Realtors® reported on Thursday. The index gained 1.1% compared with a year earlier.
The surprise gain in contract signings, which usually precede sales by one or two months, follows a historically weak spring for home sales, with elevated mortgage rates and uncertainty over the economic impact of tariffs weighing on buyer demand.
Mortgage rates remained high in May, averaging 6.82% for the month, according to Freddie Mac. But consumer confidence rebounded after President Donald Trump paused or moderated many of his tariffs and fears of a recession eased.
“Consistent job gains and rising wages are modestly helping the housing market, with hourly wages increasing faster than home prices,” says NAR Chief Economist Lawrence Yun. “However, mortgage rate fluctuations are the primary driver of homebuying decisions and impact housing affordability more than wage gains.”
The report showed all four U.S. regions experienced month-over-month gains in pending transactions, with the West jumping 6%, the Northeast gaining 2.1%, the South rising 1%, and the Midwest up 0.3%.
Year over year, contract signings rose 2.6% in the Midwest and 2% in the South, but descended 0.5% in the Northeast and 1.2% in the West.
Contract signings are generally a good leading indicator of market conditions, and the uptick in May could signal a stronger summer for home sales as conditions turn more buyer-friendly, with rising price cuts and inventory in many markets.
However, homebuyers stretched to the limits of affordability have shown incredible sensitivity to mortgage rates in recent months, and much could depend on the path rates take in the second half of the year.
“On one hand, May’s pending home sale increase could be a sign of buyers finally beginning to get off the sidelines as the market balances,” says Realtor.com® senior economist Jake Krimmel. “On the other, interest rates have been steadily rising throughout the spring homebuying season, and with the Federal Reserve holding steady, this could continue into the summer months.”
The Fed has held its benchmark rate steady in a range of 4.25% to 4.5% since December, and since then, mortgage rates have remained in a fairly narrow band above 6.6%.
At a congressional hearing this week, Fed Chair Jerome Powell faced tough questions from both Democrats and Republicans on the impact of higher rates on housing affordability.
Powell at the hearing emphasized that he remained in no rush to cut rates until the job market shows signs of weakening, explaining that the Fed expects to see tariff-driven inflation over the summer, a trend the central bank doesn’t want to exacerbate with easier monetary policy.
“We see the same thing you do in the housing market. It’s tough,” said Powell. “People are locked in. They can’t afford to get out of their house, because the cost of getting into a higher-price mortgage would be a lot.
“The best thing we can do, though, is to get inflation sustainably down to 2% and have it stay there over a long period of time, and that is really what we can offer to them,” he added.
Recent reports showed that existing-home sales fell 0.7% in May compared with last year, while new-home sales tumbled 6.3% annually.
“However, as inventory grows and sellers continue to cut prices, patient buyers are poised to gain options and some more purchasing power in the coming months,” says Krimmel.