There were two important reports on the U.S. economy released this morning. First, data from the National Association of Realtors (NAR) showed that total existing home sales in America, which account for a much larger portion of the overall U.S. housing market than new home sales, rose by 1.8 percent in May to a seasonally adjusted annual rate of 5.53 million units. This is a smaller gain than economists had expected but still the strongest existing home sales print since February 2007 (pre-recession). Regionally, home sales rose in the Northeast (+4.1 percent), the South (+4.6 percent), and the West (+5.4 percent), but declined in the Midwest (-6.5 percent). The median selling price was $239,700 in May, a 4.7 percent gain compared to this same period last year, the 51st consecutive month of annual growth, and the highest reading on record. Altogether, existing home sales have expanded by 4.5 percent over the past twelve months but the pace of annual growth might have lost a bit of momentum as affordability clearly remains a big headwind, particularly for young, first-time buyers. NAR chief economist Lawrence Yun added that “This spring's sustained period of ultra-low mortgage rates has certainly been a worthy incentive to buy a home, but the primary driver in the increase in sales is more homeowners realizing the equity they've accumulated in recent years and finally deciding to trade-up or downsize. With first-time buyers still struggling to enter the market, repeat buyers using the proceeds from the sale of their previous home as their down payment are making up the bulk of home purchases right now.”
Elsewhere, the U.S. Federal Housing Finance Agency’s (FHFA’s) national home price index (HPI) rose 0.2 percent in April (lagged), a much smaller increase than expected from March’s upward-revised figure. That slowdown lowered the year-over-year growth measure from 6.2 percent to 5.9 percent but this is still well-above the current pace of both headline consumer inflation and wage growth. Moreover, it remains likely that home prices in America will have risen for twenty consecutive quarters through Q2, a very long uptrend. Some economists like to compare the HPI to the owners' equivalent rent section of the monthly consumer price index (CPI) report from the U.S. Bureau of Labor Statistics to help spot price bubbles. As the last chart below shows, home values have increased significantly in recent years but remain below the extremes seen prior to the last recession. Going forward, relatively low mortgage rates, tight supplies, and continued improvement in the labor market should all be supportive of higher home prices.
Sources: Econoday, Reuters, Twitter, ZH, NAR, U.S. FHFA, FRBSLPost author: Charles Couch