U.S. existing home sales continue to rise
Further, it was the first back-to-back monthly increase in existing home sales since 2005 -- a modest, but much-needed accomplishment for a sector that's suffered its deepest and longest contraction in more than 25 years. Economists surveyed by Bloomberg News had expected May existing home sales to total a 4.85-million-unit annualized rate. In April, existing home sales increased 2.9 percent to a 4.68-million-unit rate. However, existing homes are still down 3.6 percent in the past year.
Equally significant, inventories fell in May, something that will gladden the hearts of home builders and realtors alike. Inventories fell to a 9.6-month supply in May at the current sales pace, down from 10.2 months in April.
Also in May, single family home sales rose 1.9 percent and condominium/co-op sales increased 6.1 percent.
Lawrence Yun, NAR chief economist, argued that public policy is helping to nudge first-time buyers into making a purchase. "Historically low mortgage interest rates clearly drew buyers into the market, and housing remains very affordable even with a recent uptick in rates," Yun said. "First-time buyers also are being drawn off the sidelines by the $8,000 tax credit, which is helping to absorb inventory."
However, the national median sales price for an existing home is still showing the effects of the recession, with the price falling 16.8 percent to $173,000 on a year-over-year basis. Median home prices by region were as follows: Northeast, down 12.5 percent to $243,600; Midwest, down 10.4 percent to $145,800; South, down 9.9 percent to $157,400; and the West, down 30.6 percent to $197,700.
Views it as a small victory
Zach Pandl, an economist for Nomura Securities International in New York, said he's encouraged by improving conditions in the existing home sales segment, but investors need to maintain a proper perspective.
"We're seeing some early signs of stabilization in home demand but it's important to emphasize the level of sales remains extraordinarily low," Pandl told Bloomberg News Tuesday. "Housing investment is likely to stop being a drag on growth some time this year but, given the weakness in sales, it's unlikely to give positive contributions any time soon."
Economic Analysis: NAR Economist Yun added that he's sticking with his forecast of 5 million existing home sales for the year. That may prove to be a slight overprojection, but given the back-to-back gains, in the spirit of "looking at the glass as half-full," we'll give him the benefit of the doubt. Further, the key determining variables for existing (and new) home sales remain job creation and mortgage rates: job losses must stop and interest rates must remain stable to maintain the modest positive trend in the housing market. That said, we can see the slight uptrend sales impact of lower prices in the May data.