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Existing home sales in the United States recorded a stronger-than-expected increase in May, reaching their highest level in several months despite continued pressure from elevated mortgage rates and limited housing supply. Sales activity improved across most regions of the country, supported by contracts signed earlier in the spring. While housing affordability showed some improvement, rising home prices, persistent inflation and higher borrowing costs continue to weigh on market conditions. Industry experts noted that first-time buyer participation increased, though it remains below the level generally considered necessary for a healthy and balanced housing market.
Existing home sales in the United States rose more than expected in May, signalling continued demand in the housing market despite high mortgage rates and inventory constraints.
According to the National Association of Realtors (NAR), existing home sales increased 3.2% month-on-month to a seasonally adjusted annual rate of 4.17 million units. The figure exceeded economists' expectations of 4.07 million units and marked the highest sales pace since December. On a year-on-year basis, sales were also up 3.2%.
Sales activity improved across the Northeast, South and Midwest regions, while the West recorded no change. Existing home sales are measured at the closing stage of a transaction and typically reflect contracts signed several weeks earlier.
Lawrence Yun, Chief Economist at NAR, stated that more Americans were changing homes, with sales reaching their strongest level in several months. He added that the increase was a positive development for the housing market.
Market analysts noted that the latest sales figures likely reflected contracts signed during March and April. During that period, mortgage rates experienced fluctuations amid geopolitical tensions in the Middle East. Rates initially moved higher before easing later following developments in the region.
The average rate on a 30-year fixed mortgage has risen by around 50 basis points since late February. At the same time, expectations of an interest rate cut by the Federal Reserve have weakened due to persistent inflation and a resilient labour market, suggesting borrowing costs may remain elevated in the near term.
Inflation concerns continue to influence the housing sector. Economists surveyed by Reuters expect the US Consumer Price Index (CPI) to have risen 4.2% year-on-year in May, compared to 3.8% in April. Higher inflation typically contributes to increased Treasury yields, which influence mortgage rates.
Despite these challenges, housing affordability showed some improvement. NAR's housing affordability index rose to 105.6 in May from 97.5 a year earlier. However, inflation continues to outpace wage growth, limiting purchasing power for many households.
Home prices also continued their upward trend. The median existing home price reached USD 429,300 in May, representing a 1.3% increase compared to the same period last year.
Housing supply improved modestly during the month. Inventory of existing homes increased 3.3% to 1.55 million units. While inventory levels typically rise during the spring selling season, available supply remains significantly below levels seen before the pandemic. Compared with a year earlier, inventory was up just 0.6%.
At the current pace of sales, the available inventory represents a 4.5-month supply, slightly lower than the 4.6-month supply recorded a year ago. A balanced housing market is generally considered to have around six months of supply.
Properties also spent slightly longer on the market. The median number of days a listed home remained available increased to 29 days from 27 days a year earlier.
The share of first-time homebuyers rose to 35% of total sales, up from 30% in the previous year. However, economists and real estate professionals have long maintained that first-time buyers should account for approximately 40% of transactions to support a stronger and more sustainable housing market.
Source Reuters
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