The National Association of Realtors reported Monday that sales of existing homes increased 4.9 per cent last month to a seasonally adjusted annual rate of 4.89 million homes. The monthly gain was the fastest since August 2011, but even with the increase, sales are still 5 per cent below the pace in May 2013.
"Sales appear to be moving up again, although the increase to date — over two months — reverses just a fraction of earlier weakening," Jim O'Sullivan, chief U.S. economist at High Frequency Economics, said in a research note.
Sales had been dampened by last year's rise in mortgage rates from historic lows and various other factors including tight supplies and tougher lending standards.
The median price of a home sold in May was $213,400, up 5.1 per cent from a year ago.
By region of the country, sales were up the most in May in the Midwest, an 8.7 per cent gain which likely reflected further catch-up from the severe winter. Sales rose 5.7 per cent in the South and 3.3 per cent in the Northeast but showed only a slight 0.9 per cent increase in the West.
The number of first-time buyers remained stuck near record lows at just 27 per cent of sales in May, down from 29 per cent in April. Analysts expressed concerns about the scarcity of first-time buyers, who historically have made up around 40 per cent of the market.
"The existing home sales market can only retain its strength for so long if move-up buyers cannot find a first-time buyer to purchase their starter homes," said Stephanie Karol, an economist at Global Insight.
The level of distressed sales — either foreclosures or short-sales in which the homeowner has to sell for less than the value of the mortgage — declined to 11 per cent of all sales in May, an improvement from 18 per cent of all sales a year ago.
After hitting a recent peak of 5.38 million sales at an annual rate last July, sales started sliding. Potential buyers have been grappling with a limited supply of houses, more expensive homes and lending standards which have been tightened in response to the housing boom of the past decade which resulted in millions of houses going into foreclosure.
Five years into the recovery from a deep recession that was triggered in part by the collapse in housing, housing sales have yet to return to their historic averages. Demand remains strong for the most expensive homes but has faltered for starter homes and those priced for middle class buyers.
The pace of home sales is below the 5.1 million homes sold in 2013 and off the pace of 5.5 million annual sales that would be consistent with a healthy housing market.
Lawrence Yun, chief economist for the Realtors, said because of the weaker start to sales this year, he expects that sales for the entire year will be down 3.1 per cent this year to 4.9 million, compared with 5.1 million sales of existing homes in 2013, which had been a 9.2 per cent rise from 2012.
Yun said he was predicting a stronger second half for sales this year but he said that would not be enough to compensate for the weakness at the start of this year, a slowdown that reflected in part a harsh winter.
Sales of existing homes began to slow in the second half of 2013 as mortgage rates crept up from historic lows, but home prices continued to rise due to a lack of available homes for sale.
Average rates for 30-year fixed-rate mortgages declined to 4.17 per cent last week, down from 4.20 per cent the previous week. Mortgage rates are about a quarter of a percentage point higher than they were at the same time last year.
Yun forecast that mortgage rates will be rising at the end of this year as the Federal Reserve moves closer to starting to boost interest rates. He forecast rates would average 4.9 per cent in the last three months of this year and 5 per cent in the first quarter of 2015.
The total inventory of homes for sale at the end of May climbed 2.2 per cent to 2.28 million homes, which represents a 5.6-month supply at the May sales pace. Inventory is 6 per cent higher than a year ago, which analysts said should help to slow price gains and boost sales by giving would-be buyers more homes to choose from.