WASHINGTON -- U.S. home resales rose in May to the highest level in 3½ years and prices jumped, a sign the housing sector recovery is gathering steam and could give the economy a significant boost this year.
"Whatever inventory is coming onto the market, buyers are ready to snap it up," said Lawrence Yun, an economist at the NAR.
The increase beat expectations for a rise to a 5 million-unit rate last month.
The housing market is one of the brightest spots in America's economy and is helping counter Washington's decision to raise tax rates and cut government spending this year.
A very accommodative monetary policy by the Federal Reserve, which has held mortgage rates near record lows, is helping to lift the housing market off the floor. Fed Chairman Ben Bernanke, however, gave clear signals on Wednesday that the Fed was on track to start dialing back its stimulus by the end of this year.
In May, the median home sales price increased a whopping 15.4 percent from a year ago to $208,000. That was the biggest year-over-year increase since 2005 and left prices at their highest level since July 2008.
"Prices have recovered quite suddenly and quite spectacularly," Yun said.
With prices rising, more sellers put their properties on the market, lifting the inventory of unsold homes on the market 3.3 percent from April to 2.22 million.
Still, the stock of homes for sale continues to be tight in the market. The May level of inventories represented just 5.1 months' supply at May's sales pace, down from 5.2 in April. Many economists consider 6.0 months to be a healthy balance between supply and demand.
9 Numbers That'll Tell You How the Economy's Really Doing
Good News for Sellers: Home Sales, Prices Rise in May
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.