U.S. existing home sales rise in May

U.S. existing home sales were up in sequential basis in May, coming in more than consensus expectations. Existing home sales were up 1.1 percent month-on-month to 5.62 million in May after a slightly downwardly revised 5.56 million print in April. The headline surprised to the upside with markets expecting another modest pullback on the month. Consensus expectations were for the sales to drop 0.5 percent.

Activity in single family and condo/co-op segments improved, with sales growing 1 percent to 4.98 million in the former and 1.6 percent to 640 thousand in the latter. Activity rebounded throughout most regions, with sales reversing course in the Midwest, whereas recovering in the Northeast, South and West, noted TD Economics.

The number of homes available for sale was up 2.1 percent sequentially; however, it stayed low by historical standards at seasonally unadjusted 1.96 million. This is an 8.4 percent drop from year-ago level and accounts for only 4.2 months’ worth of sales at the current pace compared.

The tight inventory is exerting upward pressure on prices, with the median price rising by 5.8 percent year-on-year. Properties usually remained on the market for 27 days, down from 29 days in April and 32 days one year ago.

First time homebuyers accounted for 33 percent of sales as compared with 34 percent in the earlier month. However, it was up from 30 percent one year ago. In the meantime, all-cash sales were up to 22 percent from 21 percent in April.

The better than anticipated data for May is a positive signal that strengthens the notion of a resilient housing market that has been aided by a drop in mortgage rates recently. Low mortgage rates will give additional support in June, with the volume of mortgage applications on an upswing in the month. While residential investment is not expected to add much to grow in the second quarter,  the recent figures imply a rebound is likely to take place in the third quarter.

The rise in inventory was encouraging, but inventory levels continue to be tight for some time and are stimulating price growth. Still, higher prices should bring more supply later this year, which along with higher rates should help ease price growth, stated TD Economics.

The strong price growth till date has resulted in some erosion in affordability, which along with the likely rises in mortgage rates raises question of the sustainability of the housing recovery. Still, households are expected to withstand the incremental rises in borrowing costs, owing to a strong labor market that is poised to deliver continued job and income gains, with a rebound in the homeownership rate also likely to give a gentle tailwind as outlined in the recent report, with sales likely to rebound by 3.4 percent in 2017, added TD Economics.

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