Pending home sales tumbled to an all-time low for the second consecutive month in May 2020. According to the National Association of Realtors, the drop was even worse than it was during the Global Financial Crisis (GFC). The pandemic and the resulting economic shutdown have hurt all areas of the housing market, but the drop in pending home sales is one of the most significant indicators of the decline.
Pending home sales are contracts that are accepted but have yet to close. That means that the sale is in the final stages and could close at any moment. The drop in pending home sales, therefore, suggests buyers are hesitating to purchase homes even as home prices remain fairly high. The data also indicates that people are putting off major life decisions that are dependent on economic stability such as buying a new home.
The news gets worse when looking at year-over-year sales. May had a 19.8 percent drop compared to the same time last year, which unfortunately makes it the second worst year-over-year decline since April 2009 when the GFC was in full swing. This creates more uncertainty in the housing market, which is already concerned about what will happen when the moratoriums on foreclosures are lifted.
The drop in pending home sales is a major concern for the housing and real estate industry, as it suggests buyers are holding back on making a purchase until the economy settles and stabilizes. Although there has been some progress in rebounding from the pandemic, it is going to take a while until the effects of the pandemic start to dissipate. That means that people may continue to hesitate on making major life decisions such as purchasing a home, resulting in a further drop in pending home sales until economic stability is achieved.