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Home Purchases at 5 1/2 Year High, Prices Gain


Sales of existing homes surged to an almost six year high as the long spell of job creation, rising wages and low interest rates may have drawn buyers into the market.

The National Association of Realtors reported that purchases of previously occupied homes rose 5.1 percent in May to an annual rate of 5.53 million units. This was the best record since November 2009 and, except for that month's 5.44 million pace, when demand was boosted by the pending expiration of a homebuyer tax credit, sales last month were the strongest in more than eight years.  Economists had forecast an increase of 4.4 percent to 5.26 million units. 

This year sales have averaged 5.07 million homes, the strongest performance since 2007, in the declining days of the housing bubble. 

The market has staged a good recovery from the January and February slump to 4.86 million, the slowest pace in six months.  The dip was blamed on the difficult winter in the eastern half of the country by most analysts 

First-time buyers, the most important segment of purchasers for the long term health of the market, accounted for 32 percent of transactions in Ma,y the largest share since September 2012. Though an improvement, the percentage remains well below the 40 percent to 45 percent that economists and realtors say is required for a stable housing market.

People may be more confident in undertaking what for most is their largest purchase, as job creation has averaged 227,000 per month for more than two years. That is the best record for new employment in over 15 years. 

Wages also have begun to tick up after being stagnant since the end of the recession in June 2009. Average hourly earning were 2.3 percent higher on the year in May, matching the best rate in five and a half years.  

The cost of a 30 year fixed rate mortgage, the most common type of funding for a residential purchase, was 3.99 percent on Friday, according to Bankrate.com, down from 4.14 percent earlier in the month, and well below the 4.89 percent average of last ten years or the 30 year historical average of 5.51 percent. 

Builders also report higher interest with permits for the construction of new dwelling rising in May to their highest level in almost eight years.

The availability of homes remains fairly tight, particularly of lower priced new residences and this may limit market access for younger first time buyers.

Last month, the inventory of homes listed for sale increased 3.2 percent to 2.29 million units. Supply is only 1.8 percent higher than a year ago.

At the selling rate in May, it would take 5.1 months to clear the market, down one month from April. A supply of six months is viewed as the normal balance between supply and demand.

The median price for an existing home increased 7.9 percent in May from a year earlier to $228,700. The appreciation was led by a 10.2 percent annual advance in the West and a 9.4 percent gain in the Midwest

In May there were 2.29 million  homes for sale, just over 60 percent of the 3.49 million units average during the boom years of 2006-09. Shortages could pressure prices even higher. 

House prices this year could possibly exceed the peak set in 2006 according to the National Association of Realtors. 



Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

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