US existing home sales fall in May as prices hit record high, mortgage rates rise

US EXISTING home sales fell for a third straight month in May as record high prices and a resurgence in mortgage rates sidelined potential buyers from the market.

Home sales dropped 0.7 per cent last month to a seasonally adjusted annual rate of 4.11 million units, the National Association of Realtors said on Friday (Jun 21). Economists polled by Reuters had forecast home resales sliding to a rate of 4.10 million units.

Home resales, which account for a large portion of US housing sales, decreased 2.8 per cent year-on-year in May.

They added to a sharp drop in housing starts and building permits last month in suggesting that a re-acceleration in mortgage rates from April through May had sapped momentum from the housing market recovery. Residential investment scored double-digit growth in the first quarter.

The average rate on the popular 30-year fixed mortgage raced to a six-month high of 7.22 per cent in early May before retreating to just below 7.0 per cent by the end of the month, data from mortgage finance agency Freddie Mac showed.

Sales dropped 1.6 per cent in the densely populated South. They were unchanged in the Midwest, which is considered the most affordable region, as well as in the Northeast and West.

Housing inventory increased 6.7 per cent to 1.28 million units last month. Supply jumped 18.5 per cent from one year ago. Entry-level homes remain scarce.

At May’s sales pace, it would take 3.7 months to exhaust the current inventory of existing homes, up from 3.1 months a year ago. A four-to-seven-month supply is viewed as a healthy balance between supply and demand.

Despite the improvement in supply, the median existing home price surged 5.8 per cent from a year earlier to an all-time high of US$419,300. Home prices increased in all four regions.

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“Eventually, more inventory will help boost home sales and tame home price gains in the upcoming months,” said Lawrence Yun, the NAR’s chief economist. “Increased housing supply spells good news for consumers who want to see more properties before making purchasing decisions.”

Properties typically stayed on the market for 24 days in May, up from 18 days a year ago. First-time buyers accounted for a 31 per cent of sales, compared with 28 per cent a year ago. That share is well below the 40 per cent that economists and realtors say is needed for a robust housing market.

All-cash sales made up 28 per cent of transactions in May, up from 25 per cent a year ago. Distressed sales, including foreclosures, represented only 2 per cent of transactions, unchanged from last year. REUTERS