The month of May is typically the meat of the spring selling season. So far it hasn’t disappointed. According to the National Association of Realtor (NAR), existing-home sales for May rose to their highest pace in the past nine years, while struggling inventory levels helped drive the median sales price to an all-time high.
The latest NAR report, which measures sales and prices of existing single-family homes, townhomes, condominium and co-ops for the nation, revealed total existing-homes sales grew 1.8 percent in May to a seasonally adjusted annual rate of 5.53 million. This is now the third consecutive month sales for existing-homes have risen, with sales for previously owned homes up 4.5 percent from May 2015.
“This springs sustained period of ultra-low mortgage rates has certainly been a worthy incentive to buy a home, but the primary driver in the increase in sales is more homeowners realizing the equity they’ve accumulated in recent years and finally deciding to trade-up or downsize,” said Lawrence Yun, NAR chief economist.
“With first-time buyers still struggling to enter the market, repeat buyers using the proceeds from the sale of their previous home as their down payment are making up the bulk of home purchases right now.”
One of the major obstacles facing homebuyers this spring selling season is low housing inventory. According to the NAR report, total housing inventory at the end of May increased 1.4 percent to 2.15 million existing homes available for sale. However, that is still 5.7 percent lower than a year ago. Unsold inventory is now at a 4.7-month supply at the current sales pace. According to Yun, low inventory remains a problem throughout much of the country.
“While new home construction has thankfully crept higher so far this year, there’s still a glaring need for even more, to help alleviate the supply pressures that are severely limiting choices and pushing prices out of reach for plenty of prospective first-time buyers,” said Yun.
Constrained housing inventory continues to push the median sale price for existing-homes. According to NAR, the median existing-home price for all housing types in May was $239,700, up 4.7 percent from May 2015 ($228,900). Compared to last june, which set the peak median sales price of $236,300, median existing-home prices have now increased for the 51st consecutive month of year-over-year gains.
Based on regional breakdowns, all major regions saw strong sales grow in the month of May except for the Midwest. According to NAR, existing-home sales in the Northeast increased 4.1 percent to an annual rate of 770,000, which is 11.6 percent higher than a year ago. The South and West both saw existing-home sales rise in May, with the former seeing sales rise 4.6 percent to an annual rate of 2.28 million, while prices for the later jumped 5.4 percent to an annual rate of 1.18 million. Unfortunately, existing-home sales in the Midwest dropped 6.5 percent to an annual rate of 1.30 million in May. That is, however, 3.2 percent above May 2015.
Properties listings remained hot in the month of May. On average, properties stayed on the market for 32 days, which is the shortest time since NAR began tracking in May 2011. While 49 percent of homes sold in May were on the market for less than a month. short sales were on the market the longest at a median of 103 days, while foreclosures sold in 51 days. The top five metropolitan areas where listings stayed on the market the shortest amount of time were:
- San Francisco–Oakland-Hayward, Calif. — median 25 days
- Seattle-Tacoma-Bellevue, Wash. — median 25 days
- San Jose-Sunnyvale-Santa Clara, Calif — median 26 days
- Denver-Aurora-Lakewood, Colo. — median 30 days
- Vallejo-Fairfield, Calif. — median 30 days
Another important aspect from the month of May were all-cash sales, which accounted for 22 percent of transactions in May — a two percent decrease from a year ago. In total, individual investors purchased 13 percent of homes in May, while 63 percent of investors paid cash.
Pending Home Sales Take Hit In May
While the month of May witnessed existing-home prices continue their path upwards, the same couldn’t be said for pending home sales.
Despite mortgage rates lounging around three-year lows for most of the year, pending home sales let up in May and declined for the first time in almost two years, according to the National Association of Realtors. The Pending Home Sales Index, which measures housing activity and contract signings, fell 3.7 percent to 110.8 for the month of May, compared to 115.0 in April.
According to the NAR, because a home goes under contract a month or two before it sold, the index will generally lead existing home sales by a month or two. This means a decline in pending home sales could signal a potential for home sales to drop in the following months.
“With demand holding firm this spring and homes selling even faster than a year ago, the notable increase in closings in recent months took a dent out of what was available for sale in May and ultimately dragged down contract activity,” said Yun.
Moving forward, Yun also acknowledged the fallout of Brexit and the possible benefits it could have on the U.S. real estate market.
“In the short term, volatility in the financial markets could very likely lead to even lower mortgage rates and increased demand from foreign buyers looking for a safer place to invest their cash,” he said. “On the other hand, any prolonged market angst and further economic uncertainty overseas could negatively impact our economy and end up tempering the overall appetite for homebuying.”
While the dust still needs to clear, the initial aftershocks from the historic Brexit vote should have favorable results for U.S. real estate.