WASHINGTON (MarketWatch) — Existing-home sales rose in May to the highest pace since November 2009, when buyers were rushing to make a tax-credit deadline, pointing to a continuing recovery, the National Association of Realtors reported Thursday.
Existing-home sales rose 4.2% in May to a seasonally adjusted annual rate of 5.18 million. These sales were 12.9% higher than during the same period in the prior year. Economists polled by MarketWatch had expected the pace of existing-home sales to hit a rate of 5 million in May, compared with an April rate of 4.97 million.
“This report provides further evidence that the housing market is on a firmly improving trend,” wrote analysts at RDQ Economics in a research note.
Meanwhile, the median existing-home price hit $208,000 in May, the highest since 2008, with low inventory supporting prices. The median price is up 15.4% from the same period in the prior year, the largest growth since 2005.
Inventories rose 3.3% in May to 2.22 million existing homes for sale. The supply of existing homes declined to 5.1 months at May’s sales pace from 5.2 months at April’s sales pace. The share of the sales accounted for by distressed properties and first-time buyers remained low in May.
Analysts say the housing market’s gains over the past year could have been even larger if inventories were greater. Still, economists expect housing demand to continue to grow along with the U.S. economy.
As home prices continue to rise, more buyers are likely to be able and willing to put their homes on the market. Rising prices also induce buyers to bid before prices get too high. However, NAR said prices are rising too quickly and more construction is needed.
Low interest rates have been fueling demand. In recent weeks these rates have trended higher, though there was a recent decline. While rising rates will curb demand among some buyers, they could also spur others to quickly enter the market to take advantage of high affordability.
“Given the massive rise in mortgage rates in recent weeks, we expect the pace of positive momentum will likely slow in the coming months, though the initial reaction could be for some buyers to move into the market as they try to lock-in the lower mortgage rates,” wrote Millan Mulraine, director of U.S. research and strategy at TD Securities.
Despite their recent climb, rates remain relatively low, as Federal Reserve Chairman Ben Bernanke pointed out Wednesday.
“In terms of monthly payments on an average house, the change in mortgage rates we’ve seen so far is not all that dramatic,” Bernanke said at a press conference following the central bank’s decision to leave policy unchanged.
Indeed, Americans’ views on the housing market recently hit a multiyear high, with large shares saying that now is a good time to buy and sell homes. However, recent price gains don’t necessarily signal that real estate is a good long-term investment, according to Yale economist and housing expert Robert Shiller.
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