Existing-home sales jumped a stronger-than-expected 4.9% in May from the prior month, according to the National Association of Realtors, as an improving job market and temporary dip in mortgage rates helped lift demand.
The trade organization on Monday reported total existing-home sales grew to a seasonally adjusted annualized rate of 4.89 million in May from the upwardly revised 4.66 million annual rate in April. Observers had projected a 4.75 million annual rate for May, according to a poll by Bloomberg News. All four regions of the U.S. posted sales gains in May.
Lawrence Yun, the association’s chief economist, said sales activity is rebounding after the lackluster first quarter. The sales increase in May also marked a rebound from April, when a modest increase for the beginning of the key spring selling season disappointed observers.
“Home buyers are benefiting from slower price growth due to the much-needed, rising inventory levels seen since the beginning of the year,” Yun said.
The housing sector suffered a mixed performance earlier this year, which many attributed to the severe winter weather. The sector hasn’t yet posted a meaningful recovery as it heads deeper into the key spring and summer home-buying season.
Total housing inventory at the end of the month increased 2.2% to 2.28 million existing homes available for sale, the association reported. That represents a 5.6-month supply at the current sales pace, down from 5.7 months in April.
Yun said rising inventory bodes well for slower price growth, though the amount of homes for sale are still modestly below a balanced market.
“New home construction is still needed to keep prices and housing supply healthy in the long run,” Yun said.
The median existing-home price for all housing types totaled $213,400 in May, up 5.1% from a year ago. Higher home prices bode well for home-improvement retailers Home Depot (HD) and Lowe’s (LOW), as homeowners are inspired to spend more on renovations and repairs when they perceive a return on their investment.
The Federal Reserve last week admitted the housing recovery remains slow, but also indicated one factor holding back a recovery was reluctant lending to borrowers with lower credit scores. The housing market is also held back by low participation from first-time homebuyers, according to Gleb Nechayev, senior managing economist at CBRE Econometric Advisors. Nechayev said those potential homebuyers haven’t entered the market due to a number of factors, including stagnant incomes, tough lending conditions, and high debt.