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Existing home sales surge 4.9% in May

Is this the light at the end of the tunnel?

Sunshine over sunflowers

In April, existing home sales rose for the first time in 2014.  The rise was a modest 1.3% increase over March’s figures but it still led to headlines like, "Has spring buying season finally arrived?

As it turns out, that headline may just have been prophetic. That's because May’s existing home sales were even better than April’s. According to newly released data from the National Association of Realtors, May’s existing home sales rose by nearly 5% over April’s numbers. May’s month-over-month gain of 4.9% was the highest monthly rise since August 2011.

The total existing homes sales, which are completed transactions that include single-family homes, townhomes, condominiums, and co-ops, rose to a seasonally adjusted rate of 4.89 million in May. That’s up from the upwardly revised figure of 4.66 million for April. But it's still 5.5% below May 2013's total of 5.15 million.

“Home buyers are benefiting from slower price growth due to the much-needed, rising inventory levels seen since the beginning of the year,” said Lawrence Yun, NAR’s chief economist. “Moreover, sales were helped by the improving job market and the temporary but slight decline in mortgage rates.”

NAR’s report also showed that total housing inventory rose 2.2% in May to 2.28 million existing homes available for sale. That represents a 5.6-month supply at the current pace of sales, which is down slightly from 5.7 months in April.

Unsold inventory is 6% higher than it was a year ago, when there were 2.15 million existing homes available for sale.

And the homes that are on the market are priced higher than they were last year. May’s median existing home price for all types of housing was 5.1% above May 2013.

“Rising inventory bodes well for slower price growth and greater affordability, but the amount of homes for sale is still modestly below a balanced market,” Yun said. “Therefore, new home construction is still needed to keep prices and housing supply healthy in the long run.”

NAR also reported that the share of first-time buyers continued to “underperform.” First-time buyers made up less than one-third (27%) of all buyers in May. That’s down from 29% in April.

Perhaps that’s because the number of homes available in the most affordable price bracket fell year-over-year, according to a report from Zillow (Z).

“Many potential buyers were left on the sidelines beginning last summer as affordability declined amidst rising home prices and interest rates,” NAR’s president Steve Brown said. “The temporary pause in rising interest rates and more homes for sale is good news – especially for first-time home buyers – who likely have a better chance in upcoming months to make a competitive offer that’s in return accepted by the seller.”

Brown's positive view is not shared by Lindsey Piegza, chief economist at Sterne Agee. Piegza suggests that the rise in home prices is going to continue to prevent 2014's home sales figures from reaching 2013's levels.
 
Going forward, rising home prices will continue to exclude many potential homebuyers from entering the market against the backdrop of lackluster income growth and still tepid full-time, high-wage job creation," Piegza said. "Warmer weather alone is not enough to restore housing market activity — consumers must have an organic ability to finance and afford such a large purchase."

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