After rough April numbers, May sees strong bounce back with increases in all regions
After pending home sales took a dive in April, experts were hopeful for a slight increase in May. Instead, sales increased by a solid 1.8% in May, with pending home sales numbers rising in all geographic regions nationwide.
The National Association of Realtors (NAR) reported a 1.8% month-over-month increase in its Pending Home Sales Index, which tracks contract signings on existing homes and is a leading indicator of future home sales.
That uptick outperformed economist forecasts. Analysts surveyed by Bloomberg and Reuters had expected only marginal gains of 0.1%.
The index reached 72.6 in May. Not only was that an increase over April, but also a 1.1% increase over May 2024. However, overall homebuying activity remains soft. Mortgage rates hovering near 7% and persistently high home prices continue to weigh on buyers heading into the summer, according to Odeta Kushi, deputy chief economist at First American.
“Even this modest increase in pending home sales is a welcome sign for a beleaguered housing market, as the May uptick followed a large dip in April, despite a steady upward trend in mortgage rates,” Kushi said. “The 2025 homebuying season may yet show some signs of life, as purchase mortgage applications, a separate leading indicator of housing activity, have also registered modest gains in May and June.”
Regional data shows varied challenges
Buyers signed more contracts across every major U.S. region in May. The West led with a 6% monthly increase, its strongest since late 2023. The South followed with a 1% gain, while the Northeast and Midwest rose by 2.1% and 0.3%, respectively. On a year-over-year basis, the Midwest and South posted growth, while the Northeast and West saw declines.
Lawrence Yun, NAR chief economist, said a relatively strong job market is helping push against elevated rate headwinds.
"Consistent job gains and rising wages are modestly helping the housing market," Yun said. "Hourly wages are increasing faster than home prices. However, mortgage rate fluctuations are the primary driver of homebuying decisions and impact housing affordability more than wage gains."
Yun noted that limited inventory in the Northeast is causing price increases, while in the South, decreases in home prices may reverse as the area continues to create new jobs.
"The Northeast's housing shortage is boosting home prices, with more than a quarter of homes selling above list price,” Yun said. “Conversely, more inventory in the South gives home buyers greater negotiation power. Price declines in the South should be considered temporary given the region's strong job creation."
Kushi also noted the strength of the job market and an increase in housing inventory as reasons for the solid numbers in the May report.
“While overall sales activity remains subdued, the market has shown some tentative signs of improvement,” Kushi said. “Several factors have contributed to this slow thaw. Wage growth is outpacing house price appreciation, giving affordability a chance to catch up, and inventory is increasing.”
Affordability remains a major hurdle
Although more homeowners are listing their properties, and inventory has reached a five-year high, price relief is limited.
According to the S&P CoreLogic Case-Shiller Home Price Index, home prices nationally increased by 2.7% in April compared to a year earlier. However, the pace of appreciation has slowed. Markets like Tampa and Dallas, which once led the nation in price gains, are now seeing slight declines, while more stable cities are leading the price growth.
Pending home sales remain significantly below pre-pandemic levels. The existing home sales pace remains stuck at about 4 million annually. Some analysts also suggest that the usual link between contract signings and completed sales may be weakening due to financing challenges and rate volatility.
U.S. house prices are moderating as buyers hesitate due to high rates, leading to more seller concessions. However, Trent Hufstetler, a mortgage advisor at Mpire Financial, notes these aren't always enough to motivate buyers. https://t.co/4eeXIkm8L5
— Mortgage Professional America Magazine (@MPAMagazineUS) June 26, 2025
And while Kushi believes much of the increased inventory still revolves around life events, she does see some positive signs in the NAR report.
“Life events continue to drive demand: diplomas, diapers, divorce, downsizing, and death,” Kushi said. “Still, affordability remains stretched, and macroeconomic uncertainty is keeping many buyers on the sidelines, but a glimmer of increased activity offers some cautious optimism for the remainder of the year, especially if rates moderate.”
The Pending Home Sales Index is benchmarked to 100, which represents the level of contract activity in 2001. May's reading of 72.6 indicates that activity remains significantly lower than historical averages.
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