U.S. Home Sales Show Unexpected Growth in May
In May, existing home sales in the U.S. managed to exceed forecasts, yet challenges like rising mortgage rates and limited inventory continue to plague the housing market.
According to the National Association of Realtors, home sales increased by 3.2% last month, reaching a seasonally adjusted annual rate of 4.17 million units. Interestingly, economists surveyed by Reuters had predicted a lower figure of 4.07 million units.
Sales saw an uptick in the Northeast, South, and Midwest, while the West region remained stable.
When compared to May of the previous year, home resales increased by 3.2%, which is noteworthy. Lawrence Yun, Chief Economist at NAR, remarked, “Home sales are reaching their highest level since December, indicating that more Americans are making moves.” It seems to be positive news for the housing sector.
This recent increase likely reflects contracts that were finalized in March and April. It’s worth noting that mortgage rates began to rise around March, partly due to geopolitical tensions, but showed a decline towards the end of April after a ceasefire was declared.
The ongoing Middle East conflict is contributing to inflation, impacting energy costs and the shipping of goods through critical routes like the Strait of Hormuz. This has influenced the rise in U.S. Treasury yields, which are tied to mortgage rates.
Average rates for the widely used 30-year fixed mortgage have increased about 50 basis points since late February when the conflict escalated. With inflation on the rise and a stable labor market, the possibility of a Federal Reserve rate cut appears less likely, suggesting that mortgage rates may stay elevated.
On Wednesday, the government is anticipated to announce that the consumer price index experienced a 4.2% increase in May compared to the same month last year, marking the most significant rise since April 2023. In April, the CPI rose by 3.8%.
NAR’s housing affordability index for May stood at 105.6, a notable gain from 97.5 a year earlier. However, inflation continues to outstrip wage growth. The median price for existing homes rose to $429,300 last month, reflecting a 1.3% increase from the prior year.
Inventory of existing homes climbed by 3.3% to reach 1.55 million units. While supply tends to increase in May, it still remains significantly lower than pre-pandemic levels.
When looking at year-over-year comparisons, supply rose by 0.6%. At the current sales pace, it is projected that it would take 4.5 months to deplete the existing inventory, slightly down from 4.6 months a year ago.
Interestingly, the median duration for a listed property on the market was 29 days, slightly longer than the 27 days seen a year prior. Notably, first-time homebuyers represented 35% of sales, a rise from 30% last year. Industry experts suggest that a robust housing market ideally requires this demographic to make up around 40% of the buying force.
