Previously owned homes sold in May at the fastest pace since November 2009, driven by first-time buyers and indicating budding momentum in the residential real estate market.
Closings on existing properties, which usually occur a month or two after a contract is signed, rose 5.1% to a 5.35 million annualized rate, the National Association of Realtors reported Monday in Washington. The median forecast in a Bloomberg survey called for a 5.26 million pace. The share of first-time buyers matched the highest level since September 2012.
Employment gains, rising incomes and still-cheap borrowing costs are combining to propel sales after a period of uneven demand from late 2014 through early this year. The prospect of higher interest rates as the Federal Reserve considers tighter monetary policy may be encouraging more Americans to take the homeownership plunge.
“Given the combination of rates being low but expected to rise, that’s a pretty powerful incentive, if you’re thinking about buying, to get down and do it,” David Sloan, senior economist at 4Cast Inc. in New York, said before the report. “It does look like housing’s going to see a pretty strong second quarter.”
Estimates in the Bloomberg survey of 71 economists ranged from 5.05 million to 5.4 million. April’s pace was revised to 5.09 million from an originally reported 5.04 million.
Compared with a year earlier, purchases increased 5.1% in May before adjusting for seasonal variations.
First-time buyers accounted for 32% of all purchases in May, up from 27% a year earlier.
“The return of first-time buyers in May is an encouraging sign,” Lawrence Yun, NAR chief economist, said in a statement.
The median price of an existing home rose 7.9% from May 2014 to $228,700. The appreciation was led by a 10.2% year-to-year advance in the West and a 9.4% gain in the Midwest.
Prices have been bolstered by a dearth of supply on the market. The number of previously owned homes for sale rose 1.8% in May to 2.3 million.
At the current sales pace, it would take 5.1 months to sell those houses, compared with 5.2 months at the end of the prior month. Less than a five-month supply is considered a tight market, the Realtors group has said.
“Current demand exceeds supply in many markets, leading to price appreciation, and the large amount of pent-up demand is gradually translating into additional buyers,” Larry Seay, chief financial officer of Meritage Homes Corp. in Scottsdale, Arizona, said at a June 3 conference hosted by Deutsche Bank.
Purchases climbed in all four regions, led by an 11.3% gain in the Northeast, the Realtors’ data show.
Sales of existing single-family homes increased 5.6% to an annual rate of 4.73 million. Purchases of multifamily properties — including condominiums and townhouses — rose 1.6% to a 620,000 pace.
Of all purchases, cash transactions accounted for about 24%, the report showed.
“Certainly an improving economy is helping,” Yun said. Realtor confidence and buyer traffic are “solidly up.”
Distressed sales, comprised of foreclosures and short sales, in which the lender agrees to a transaction for less than the balance of the mortgage, accounted for 10% of the total for a third month.
The housing industry has shown gradual gains in the second quarter after the world’s largest economy slumped in the first three months of the year.
While housing starts declined 11.1% in May to a 1.04 million annualized rate, that followed a revised 1.17 million pace in April to cap the best back-to-back readings since late 2007, Commerce Department figures showed last week. Permits for future projects rose to the highest level in almost eight years.
Homebuilders are feeling better about the outlook. The National Association of Home Builders/Wells Fargo builder sentiment gauge advanced in June to the highest level since September.
Relatively low borrowing costs are still supporting would- be buyers who can qualify for credit. The average rate for a 30-year fixed mortgage reached 4.04% in the week ended June 11, according to data from Freddie Mac. While that was the highest rate this year, it’s below the average 4.17% for all of 2014.
“Housing overall, given the still-low level of mortgage rates, remains quite affordable,” Federal Reserve Chair Janet Yellen said in a June 17 press conference after the policy makers’ two-day meeting in Washington. At the same time, “anyone who doesn’t have a pristine credit rating finds it very difficult at this point to qualify for a mortgage.”
The central bankers decided at their June meeting to keep the benchmark interest rate near zero, where it’s been since 2008. Most economists surveyed by Bloomberg project the Fed will announce its first rate increase in nine years in September.
Existing home sales, which are tallied only when purchase contracts close, account for more than 90% of the residential market. A timelier barometer is new-home purchases, because they are tabulated earlier in the process, when deals are signed.
Economists project those sales rose to a 524,000 pace in May after 517,000 the prior month, according to the Bloomberg survey median ahead of Tuesday’s report from the Commerce Department.