Movin’ On Up in May – Existing Home Sales
All four regions of the country experienced sales gains compared to the previous month. Existing home sales rose with gusto in May, to 4.9 percent to a seasonally adjusted annual rate of 4.89 million in May from an upwardly-revised 4.66 million in April. The 4.9 percent month-over-month gain in May was the highest monthly rise since August 2011!
After a lackluster 1st quarter sales are rebounding. Lawrence Yun, NAR chief economist says:
Home buyers are benefiting from slower price growth due to the much-needed, rising inventory levels seen since the beginning of the year. Moreover, sales were helped by the improving job market and the temporary but slight decline in mortgage rates.
Total housing inventory also climbed 2.2 percent in May. Yun explains why a growing inventory looks good:
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. Therefore, new home construction is still needed to keep prices and housing supply healthy in the long run.
Currently, new home construction is insufficient in most of the U.S., and some states could face persistent housing shortages and affordability issues unless housing starts increase to match up with local job creation. New home construction is underperforming in 32 states and the District of Columbia. There’s a strong relationship between new jobs and an increase in demand for housing. Yun points out that the past has shown us that there’s one new home construction for every one-and-a-half new jobs. NAR’s analysis found that a majority of states are constructing too few homes in relation to local job market conditions. He adds, “This lack of construction has hamstrung supply and slowed home sales.” Yun also affirms that housing starts need to increase places facing shortage conditions or else, “Prospective buyers may struggle with options and affordability if income growth cannot compensate for rising home prices.”
A peculiar trend has emerged despite the fact that the market has experienced a decrease in distressed homes and investor activity. All-cash purchases are on the rise. They are an unusual tactic but sometimes a winning strategy at the negotiating table. These all-cash purchases have risen and currently make up 33 percent of the market. Many economists speculate reasons for the trend:
- Restrictive lending standards have caused many buyers, especially wealthy ones, to forgo a loan.
- The aging baby boom generation, many of whom are trading down and paying for their purchase with cash accumulated from decades of equity.
- Home purchases by foreign buyers in the U.S. are increasing and those buyers don’t have the credit history in the U.S. to qualify for a loan.
NAR President Steve Brown said housing fundamentals are showing slight improvement in markets across the country. “Many potential buyers were left on the sidelines beginning last summer as affordability declined amidst rising home prices and interest rates,” he 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.”