Purchases of previously owned U.S. homes rose in May by the most in almost three years, a sign the industry may be stabilizing after a weather-depressed quarter.
Sales climbed 4.9 percent, the biggest gain since August 2011, to a 4.89 million annualized rate, according to figures released Monday in Washington D.C. by the National Association of Realtors. The level was the strongest since October and exceeded the median forecast of economists in a Bloomberg survey. Prices increased at the slowest pace in more than two years.
A bigger supply of houses, smaller price gains, rising employment and still-low borrowing costs may encourage more Americans to come into the market. Improving demand is prompting a pickup in construction, and builders such as Hovnanian Enterprises Inc. are optimistic the recovery remains on track.
“I’m confident that the housing recovery is going to continue,” said Tom Simons, an economist at Jefferies, a Manhattan investment banking firm. Simons projected sales would rise to a 4.8 million pace. “Income levels are going up, rates are at least not going up anymore, and prices are stabilizing, so all that blends into a good picture for affordability.”
The median forecast of 70 economists surveyed by Bloomberg projected a gain to a 4.74 million rate. Estimates ranged from 4.63 million to 4.9 million. The prior month’s pace was revised to 4.66 million from a previously reported 4.65 million.
The median price of an existing home rose 5.1 percent from May 2013 to reach $213,400, today’s report showed. The 12-month increase was the smallest since the year ended March 2012.
Compared with a year earlier, purchases decreased 8.2 percent before seasonal adjustment.
The number of previously owned homes on the market increased 6 percent from a year earlier to 2.28 million, the most since August 2012. At the current sales pace, it would take 5.6 months to sell those houses compared with 5.7 months at the end of the prior month.
The month’s supply is consistent with a balanced market, Lawrence Yun, NAR chief economist, said at a news conference today as the figures were released.
First-time buyers accounted for 27 percent of all purchases and are still having trouble getting into the market, Yun said.
Distressed sales, comprised of foreclosures and short sales, in which the lender agrees to a transaction for less than the balance of the mortgage, accounted for 11 percent of the total, the fewest since records began in October 2008.
The slump in sales that began about a year ago when mortgage rates shot up “is pretty effectively over,” Yun said at the news conference. Given the gains in employment, it is “hard to foresee how sales could slide back now.” Yun projected sales will soon top the 5 million pace and stay around those levels for the rest of the year.
He projected for all of 2014 sales will total 4.93 million, down from 5.09 last year. The drop reflects the slump at the beginning of the year, he said.
Existing home sales, tabulated when a purchase contract closes, account for more than 90 percent of the residential market. New-home purchases, which make up about 7 percent and are tabulated when contracts are signed, are considered a timelier barometer.
The housing recovery still has a ways to go. Existing-home sales had plunged to a 13-year low of 4.11 million in 2008, three years after a record 7.08 million houses were sold in 2005.
Borrowing costs, which climbed in the second half of 2013, have retreated recently. The average 30-year, fixed-rate mortgage was 4.17 percent in the week ended June 19, down from 4.41 percent at the beginning of April, according to data from Freddie Mac in McLean, Virginia. Overall, mortgage costs are still near historically low levels.
Residential construction is picking up this quarter after a weather-induced slump at the start of the year. Builders broke ground on homes at a 1 million annualized pace in May following 1.07 million in April, the best two-month reading since late 2013, a Commerce Department report showed this month.
Sentiment is also rebounding. The National Association of Home Builders/Wells Fargo confidence index climbed to 49 from 45 in May, the biggest gain since July 2013. The gauges for current sales, the outlook for future purchases and prospective buyer traffic all improved to the highest level since January.
Increasing property prices hurt affordability for prospective buyers trying to get into the market, at the same time they also help homeowners feel wealthier and may keep boosting profits for developers.
Hovnanian Enterprises, New Jersey’s largest home builder, is optimistic that demand will continue to rise though sales have been uneven in recent months.
“While the housing market has improved dramatically overall compared to where it was a couple of years ago, the recent recovery has been a little more choppy,” chief executive Ara Hovnanian said during an earnings conference call on June 4.
Household formation will be the primary driver of long-term housing demand, he said and “the creation of well-paying jobs will go a long way” toward boosting the market. “Given the low levels of total U.S. housing starts, we remain convinced that we are still in the early stages of the housing industry recovery,” Hovnanian said.
Some industry groups are growing concerned about the rebound. The Mortgage Bankers Association last week lowered its forecast for combined new and existing home sales in 2014 to 5.28 million — a decline of 4.1 percent that would be the first yearly drop in four years. The group also cut its prediction on mortgage lending volume for purchases.