NAR: First-time homebuyers still constrained by tight credit and declining affordability

The number of homes that went under contract in May leaped from the previous month as lower mortgage rates and growing home inventory stimulated buyer activity, according to a report from the National Association of Realtors.

Pending home sales — an indicator based on contract signings that anticipates home sales — jumped 6.1 percent month over month in May, but were down 5.2 percent from the same time last year.

“Sales should exceed an annual pace of 5 million homes in some of the upcoming months behind favorable mortgage rates, more inventory and improved job creation,” said NAR Chief Economist Lawrence Yun in a statement.

“However, second-half sales growth won’t be enough to compensate for the sluggish first quarter and will likely fall below last year’s total.”

All four regions of the country posted increases in pending sales, with the Northeast and West showing the largest gains, according to NAR.

The jump in pending sales provides the latest evidence that the housing market may have shrugged off a recent slump.

One tailwind has been growing inventory, which increased 2.2 percent month over month in May as existing-home sales jumped 4.9 percent. Another is lower mortgage rates. Rates on 30-year fixed-rate mortgages recently posted their first annual decline in more than a year, according to Freddie Mac.

Despite the improvement, Yun said that the outlook for first-time homebuyers remains gloomy. Constrained by tight credit and declining affordability, purchases made by the group accounted for 27 percent of existing-home sales in May, Yun said. Historically they’ve comprised about 40 percent.

“The flourishing stock market the last few years has propelled sales in the higher price brackets, while sales for homes under $250,000 are 10 percent behind last year’s pace,” Yun said. “Meanwhile, apartment rents are expected to rise 8 percent cumulatively over the next two years because of tight availability.”

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