Pending home sales hit by supply shortage

FILE - In this Thursday, Dec. 3, 2015, file photo, a home under construction and for sale is shown in Roswell, Ga. U.S. home prices rose in December 2016 from a year earlier at the fastest pace in 11 months, as prospective buyers bid against each ... other for a limited supply of available property, according to the Standard & Poor's CoreLogic Case-Shiller 20-city home price index, released Tuesday, Feb. 28, 2017. (AP Photo/John Bazemore, File) (AP)

Pending sales of U.S. homes posted a surprise drop in May, marking the third straight month of declines amid a shortage of homes listed for sale.

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The Pending Home Sales Index from the National Association of Realtors fell 0.8% to 108.5, reflecting a drop in the number of contracts signed in May. The results bucked expectations. Economists were looking for an increase of 0.8% compared to the prior month, according to a Thomson Reuters poll.

The NAR noted that pending home sales were down in the Northeast, South and West. Buying activity in the Midwest held steady.

Demand for housing remains strong, thanks to an improved labor market and stronger economy. But with a lack of available homes, rising prices have kept many potential buyers on the sidelines. “Buyer interest is solid, but there is just not enough supply to satisfy demand,” said Lawrence Yun, NAR’s chief economist.

The decline in May pending home sales signals that existing sales could weaken in the coming months, when those contracts are finalized.

The NAR said existing home sales are on pace to hit 5.63 million this year, a 3.2% gain year-over-year. The national median existing home price is forecasted to increase around 5%.

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Home prices climbed 5.1% in 2016, while sales of existing homes were up 3.8%.

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