Loading...

A half-hour into the trading day, the investment community received another encouraging report on the U.S. housing market when the National Association of Realtors, the nation’s largest trade association, reported an increase in existing home sales for the month of May. The sales data come on the heels of Tuesday’s decent news on housing starts and building permits for the same month.

Specifically, the latest report showed that existing home sales rose 4.2% sequentially last month, to a seasonally adjusted rate of 5.18 million. That was up 12.9% from the prior-year period. The report was yet another sign that the housing industry is in the midst of a durable recovery. The National Association of Realtors’ Chief Economist Lawrence Yun said, “The housing numbers are overwhelmingly positive,” and he noted that the recovery is strengthening.

In addition to the increase in existing sales, there were several other positive aspects to the latest report, most notably a continued uptick in home prices. The national median price was up 15.4%, year over year, in May, the sixth consecutive monthly double-digit advance and the strongest gain since October, 2005. Also, the number of distressed homes (i.e., foreclosures and short sales sold at deep discounts) accounted for 18% of the May sales, unchanged from April, but down from 25% in May, 2012. Moreover, total existing homes inventory stood at 2.22 million at the end of May, which representing a 5.1-month supply at the current sales pace—down from 5.2 months in April and 6.5 months in the prior-year period. The latter two data points are particularly noteworthy, as a continuation of such trends would probably boost selling prices in the months to come. 

Driving a lot of the recent demand for homes is record low mortgage rates. According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage was 3.54% in May. While affordability remains a big plus for the housing market right now, two concerns are the employment picture and the recent uptick in yields following Federal Reserve Chairman Ben Bernanke’s comments that the central bank could begin tapering off on its bond buying later this year. Such a scenario may well push mortgage rates higher in the near future and could discourage some buyers from making a home purchase. Still…

The latest existing home sales data have to be considered another very positive sign for the housing industry. It was encouraging to see home sales and the median price rise in all four regions of the United States. Especially noteworthy were the sales increases in the South (up 4.0% sequentially), and the West (+2.5%), the two biggest housing markets in the country. These favorable conditions were also highlighted by the latest strong reading for the National Association of Home Builders/Wells Fargo Housing Market Index, which registered its strongest month-to-month gain in more than a decade last month.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.