Sales of previously owned U.S. homes increased in May, a sign of solid demand during the housing market’s spring selling season in the face of fast-rising prices and tight inventory.
Existing-home sales rose 1.1% in May from the prior month to a seasonally adjusted annual rate of 5.62 million, the National Association of Realtors said Wednesday. Economists had expected a modest decline from April. Compared with a year earlier, sales were up 2.7% last month.
“The fact that sales of existing homes rose in May — despite incredibly limited selection, shrinking times on market and rapidly rising prices — is a testament to just how strong the draw to homeownership is right now for millions of Americans,” said Svenja Gudell, Zillow’s chief economist.
Sales have seesawed from month to month so far in 2017 and hit a 10-year high in March. At the same time, increasingly scarce inventory is driving up prices faster than household incomes are growing.
“The way to solve this housing shortage, housing crisis that is developing, is to just build more homes,” said Lawrence Yun, chief economist for the National Association of Realtors.
The median sales price in May was $252,800, the highest nominal level on record and up 5.8% from a year earlier. There was a 4.2-month supply of homes on the market at the end of the month, based on the current sales pace. Inventory has declined on a year-over-year basis for 24 straight months.
The median property remained on the market just 27 days in May, the shortest time since the trade group began tracking the metric six years ago.
“Right now we’re in a true seller’s market,” said Mark Trenka, owner of Century 21 Trenka Real Estate in Denver. He said a home in the city was brought onto the market Saturday, had 30 showings and attracted 10 offers in one day—and was under contract Sunday.
Colorado’s unemployment rate was a record-low 2.3% in May, according to the Labor Department. That, together with low inventory, is helping drive a “really competitive” environment, Mr. Trenka said.
Purchases of previously owned homes account for roughly 90% of U.S. homebuying activity. Sales of newly built single-family homes dropped in April after three straight monthly rises, though economists expect the Commerce Department on Friday will report new-home sales rose 3.7% in May.
Several factors are working to support buyers. The national unemployment rate in May was 4.3%, its lowest level since 2001. The economy continued to expand and add jobs in the first half of 2017, and gauges of household confidence remain elevated.
Mortgage rates rose after last year’s presidential election but edged down in recent months. The average interest rate on a 30-year fixed-rate mortgage was 4.01% in May, down from 4.05% in April, according to Freddie Mac.
Still, the pace of new construction has lagged behind. Housing starts were up 3.2% in the first five months of 2017 compared with a year earlier, slowing from 5.6% growth in all of 2016.
“We know builders have not caught up with the market,” Mr. Trenka said. “We’re not getting enough product.”
That could change if builders ramp up production in response to fresh evidence of strong demand. Miami-based home builder Lennar Corp. on Tuesday reported its new orders were up about 12% on the year in the three months ended May 31, and the dollar value of new orders rose roughly 17% from a year earlier.
“The slow and steady, though sometimes erratic, market improvement that we have seen for the entirety of this recovery continues to seem to be giving way to a more definitive reversion to normal,” Chief Executive Stuart Miller told analysts.
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