It seemed safe to say, even before the National Association of Realtors® (NAR) released the pending home sale numbers for April, that some analyst somewhere would be able to say, "I told you so." Trading Economics had a +0.8 consensus estimate while Econoday's consensus of 2.0 percent was for growth predictions ranging from 0.8 to 5.0 percent.

Guess what, everybody was wrong. Very wrong

NAR's Pending Home Sale Index (PHSI), which is based on signed contracts to purchase existing homes, dropped 4.4 percent from its  March level to 106.2 in April, very close to the 100 benchmark set 20 years earlier. Year-over-year, signings jumped 51.7 percent compared to April 2020 when pandemic-related shutdowns brought sales to an all-time low. The drop in the PHSI does not bode well for existing home sales over the next few months. Those sales have fallen for the last two months.

"Contract signings are approaching pre-pandemic levels after the big surge due to the lack of sufficient supply of affordable homes," said Lawrence Yun, NAR's chief economist. "The upper-end market is still moving sharply as inventory is more plentiful there."

Yun said he expects the supply of available homes to improve, perhaps as soon as autumn. He points to growing comfort on the part of homeowners to have their homes shown to buyers as well as an increase in listings after the conclusion of the eviction moratorium or as borrowers exit forbearance.

"The Midwest region, which has the most affordable homes, was the only region to notch a gain in the latest month," Yun noted. "Some buyers from the expensive cities in the West and Northeast, who have the flexibility to move and work from anywhere, could be opting for a larger-sized home at a lower price in the Midwest."

The PHSI in the Northeast dropped 12.9 percent 85.3 but held on to a 96.5 edge over the previous April. In the Midwest, the index increased 3.5 percent to a 101.1 reading, up 39.4 percent year-over-year.

Pending home sales transactions in the South fell 6.1 percent to an index of 128.9 which was 45.3 percent higher than a year earlier. The index in the West decreased 2.6 percent in April to 92.0, an annual increase of  57.3 percent.

The PHSI is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months. Existing home sales numbers for April will be released on June 22.