May’s home sales offered some drama for housing market watchers. It’s early to state anything definitively, but we could be witnessing a tempering in home prices, which have been growing faster than well-fertilized kudzu.
For starters, sales of existing homes fell 0.4 percent in May, marking the second month in a row that existing home sales have declined, according to the National Association of Realtors (NAR). Moreover, compared to May 2017, May’s sales were down 3 percent.
That volume drop was right in line with what many economists and real estate analysts have been saying: poor housing inventory was pushing prices up, which was forcing some buyers to sit on the sidelines.
“Incredibly low supply continues to be the primary impediment to more sales, but there’s no question the combination of higher prices and mortgage rates are pinching the budgets of prospective buyers, and ultimately keeping some from reaching the market,” said NAR’s Chief Economist Lawrence Yun.
To that point, the inventory of existing homes at the end of May expanded 2.8 percent. However, when compared to the same period a year ago, inventory actually fell 6.1 percent from May 2017. The attenuated supply of homes pushed May’s median existing-home price to $264,800 — an all-time high.
But then the Census Bureau and the Department of Housing and Urban Development jointly reported that new home sales grew 6.7 percent in May. Moreover, sales for the month were a whopping 14.1 percent higher than May 2017’s new home sales.
Looking at price and inventory, the median price for new homes ticked down to $313,000 in May, and the supply of new homes for sale at the end of the month notched up to 299,000.
At this point, you’re likely asking why did existing home sales fall while new home sales increase? There’s a simple explanation: They’re not apples-to-apples data points. NAR’s existing home sales data looks at actual closings only, while the Census Bureau and HUD’s figures look at not only closings but signed contracts, as well. So, the new home sales figures tend to be a bit more “puffed up” than existing home sales totals.
Regardless of differences in reporting methodology, what is notable is that May’s mortgage rates were a half percentage point higher than at the beginning of the year. That should demonstrate that buyers are eager to get into the market however they can, including buying new homes, which typically cost more than existing homes. And, as the new home sales data indicates, when inventory expands, and prices decline, sales volume grows.
Fortunately, starts on construction of new homes in May grew 5 percent, and starts specifically on single-family homes were up 3.9 percent, according to data released the Census Bureau and the Department of Housing and Urban Development. May’s housing starts were an eye-popping 20.3 percent higher than May 2017.
That’s encouraging news, but Zillow Senior Economist Aaron Terrazas reminded that there’s work to be done, noting in an interview with the Associated Press that “We’re building roughly 2.7 homes for every 1,000 Americans — well below historic averages form the 1980s and 1990s of about 4.2 homes per 1,000 residents.”
Let’s call efforts to build inventory a work in progress then, shall we?