Pending home sales slipped in May after three months of gains as demand outstrips supply amid rising prices.
The National Association of Realtors said Wednesday that its pending home sales index, a forward-looking indicator based on contract signings, slid 3.7 percent to 110.8 in May, from 115 in April.
While the reading is still the third highest in the past year, the contract signings declined year-over-year for the first time since August 2014.
All four major regions also saw a decrease in contract activity last month.
“With demand holding firm this spring and homes selling even faster than a year ago, the notable increase in closings in recent months took a dent out of what was available for sale in May and ultimately dragged down contract activity,” said Lawrence Yun, NAR chief economist.
“Realtors are acknowledging with increasing frequency lately that buyers continue to be frustrated by the tense competition and lack of affordable homes for sale in their market,” Yun said.
Meanwhile, mortgage rages are hovering around three-year lows — below 4 percent — keeping prospective buyers in the market despite the headwinds.
Together, scant supply and swiftly rising home prices — which surpassed their all-time high last month — are creating an availability and affordability crunch that is weighing on the pace of sales, Yun said.
“Total housing inventory at the end of each month has remarkably decreased year-over-year now for an entire year,” Yun said.
“There are simply not enough homes coming onto the market to catch up with demand and to keep prices more in line with inflation and wage growth,” he said.
The United Kingdom’s decision to leave the European Union has injected some uncertainty into the U.S. housing market; the turbulence in financial markets and a shift into safer investments like Treasuries could lead to lower mortgage rates.
The flip side, though, is that any “prolonged market angst” could negatively affect the economy and temper the interest from potential buyers.
Despite the pullback in contract signings, existing-home sales this year are still expected to reach 5.44 million, 3.7 percent above 2015.
After accelerating to 6.8 percent a year ago, national median existing-home price growth is forecast to moderate to between 4 and 5 percent.
Regionally, contract signings fell in the Northeast 5.3 percent, the index in the Midwest slipped 4.2 percent, signings dropped 3.1 percent in the South and by 3.4 percent in the West.