Existing-home sales in May hit their highest pace in almost a decade, while the uptick in demand this spring amidst lagging supply levels pushed the median sales higher, according to the National Association of Realtors (NAR).
May’s total existing-home sales grew 1.8 percent from April to a seasonally adjusted annual rate of 5.53 million and are now up 4.5 percent from a year ago, the report found. This puts existing home sales at their highest annual pace since February 2007, which hit 5.79 million.
According to realtor.com chief economist Jonathan Smoke, the May gain over April signals that the real estate market has maintained strong momentum all spring.
“We are now in this year’s peak home buying months,” Smoke said. “This pace of sales should produce the gains we have been forecasting that will make 2016 the best year of home sales in a decade.”
Trulia’s chief economist, Ralph McLaughlin, pointed out that exiting home sales are almost back to where they were before the bust.
“Though steadily marching upwards, existing home sales hovers at about 94 percent of the pre-recession average of 5,875,300 units sold annually,” he said.
May also marked the third straight month existing home sales increased and the 51st straight month-over-month increase in median peak sales prices. May’s median peak sale price was $239,000, nationwide.
Lawrence Yun, NAR’s chief economist, credited this spring's sustained period of ultra-low mortgage rates as “a worthy incentive to buy a home. But the primary driver in the increase in sales,” he said, “is more homeowners realizing the equity they've accumulated in recent years and finally deciding to trade-up or downsize.”
Also, 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, Yun said. The share of first-time buyers was 30 percent in May, down from 32 percent both in April and a year ago. First-time buyers in all of 2015 also represented an average of 30 percent, according to NAR.
“This pace of sales should produce the gains we have been forecasting that will make 2016 the best year of home sales in a decade.”
Jonathan Smoke, Chief Economist, Realtor.com
"Barring further deceleration in job growth that could ultimately temper demand from these repeat buyers, sales have the potential to mostly maintain their current pace through the summer,” he said.
Total housing inventory rose 1.4 percent in May to 2.15 million existing homes available for sale. This is still 5.7 percent lower than last year’s 2.28 million. Unsold inventory is at a 4.7-month supply at the current sales pace, which is unchanged from April, NAR reported.
"While new home construction has thankfully crept higher so far this year,” Yun said, “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."
McLaughlin echoed these feelings, saying that low inventory, especially for starter and tradeup homes, “continues to stifle home sales activity. Finding a home is increasingly a challenge for both first and second-time homebuyers,” he said.
Still, Smoke said, existing home inventory is now moving faster than at any point in this recovery.
“The biggest challenge to prospective buyers right now is tight supply, which we have seen for 45 consecutive months,” he said. “In these conditions, home values have strong support, but potential buyers will continue to face challenges finding a home for sale that meets their needs. That is why we’re seeing the age of inventory drop dramatically while prices have gone up 5 percent over the last year and are now at record nominal levels.”