A Pending Sale sign is posted outside a home for sale in San Anselmo, California.

Justin Sullivan | Getty Images

The pandemic-induced real estate boom may not be over yet. Despite declining sales in recent months, buyers came back remarkably strong in May.

Home sales, a measure of signed contracts for existing homes, rose an unexpectedly high 8% in May versus April, according to the National Association of Realtors. Analysts had expected a decline of 1%. This is the highest May sales activity since 2005.

Sales were up 13% from May 2020, when the housing market was just beginning to recover from the coronavirus lockdown. Pending contracts are a forward-looking indicator of closed home sales.

“The sharp surge in transactions in May – after the fall in April and a sudden home affordability – was indeed a surprise,” said Lawrence Yun, chief economist at NAR. “The real estate market is attracting buyers because of the decline in mortgage rates, which fell below 3%, and an increase in offers.”

After falling quite sharply in April, the 30-year fixed-term deposit average was in a tight range in May, which gave some buyers at least some relief from possible monthly payments.

But sky-high house prices were a major concern. In April, the highly regarded S&P Case-Shiller National Home Price Index rose over 14% year-on-year, the largest increase in its 30-year history.

Brokers are reporting even higher increases in the average home price, some of which are skewed due to the fact that there is more sales activity at the higher end of the market, where there are more offers. The lower end of the market barely moves as first-time buyers battle for meager deals. Investors who use the majority of cash are also more represented at the lower end of the market.

“While these hurdles have helped price out some potential buyers, the country’s record total wealth appears to be providing funds for home purchases due to the heightened stock market and rising property prices,” Yun said.

At the regional level, pending home sales in the northeast rose 15.5% month on month. In the Midwest, sales rose 6.7%. Sales in the south were up 4.9% from April. In the west they rose by 10.9%.

The scarcity of existing housing was an important factor, but that supply increased slightly in May compared to April, although it was still historically low. The supply of existing properties is around 20% below the previous year’s level. Even builders have not ramped up production as quickly as the market demands.

New home sales in May, which are also measured by signed contracts, were down almost 6% from April as home builders continued to raise prices. The median price of a new home sold in May rose 18% according to the US census. Builders have seen the cost of land, labor and materials rise. Although the price of wood has fallen dramatically in the last month, it is still well above pre-pandemic levels.