Sales of pre-owned homes in the United States rose significantly in May, reaching their highest level since December, according to the National Association of Realtors (NAR). This uptick marked a 3.2% increase from the previous month and brought sales to a seasonally adjusted annual rate of 4.17 million units. When compared to the same time last year, sales maintained this growth rate of 3.2%.
Regionally, the Midwest, South, and West saw increases in home sales compared to last year, while the Northeast experienced a downturn. The reported sales figure exceeded the economists’ expectations of about 4.07 million, as per FactSet.
Historically, home sales have been close to an annual pace of 4 million since the start of 2023, whereas the typical rate hovers around 5.2 million. Despite the rise in sales, mortgage rates have mostly remained elevated since the spring, although they are lower than they were a year ago.
The U.S. median home sales price climbed 1.3% in May from the previous year, hitting an all-time high of $429,300 for any May based on data dating back to 1999. This marks the 35th consecutive month of annual price increases.
However, home price growth is lagging behind income growth in many areas. This, along with mortgage rates still below last year’s levels, is enhancing affordability and helping the housing market gain momentum. Lawrence Yun, NAR’s chief economist, noted that home sales might fully recover from their slump if the average 30-year mortgage rate dips closer to 6%.
The housing market has been in a downturn since 2022, when mortgage rates began to increase from pandemic lows. Last year, home sales mostly stagnated, hitting a 30-year low, and have been sluggish this year as well, with April showing no growth from previous months.
Years of escalating home prices, driven in part by low mortgage rates early in the decade, have priced many potential buyers out of the market. A persistent shortfall in available homes, due partly to years of subpar new home construction, has maintained high home prices even during the sales slump.
Contracts for homes bought last month were likely signed in March and April when average mortgage rates ranged from 6% to 6.46%, per Freddie Mac. The average rate was 6.48% last week, down from 6.85% a year prior. Rising oil prices due to geopolitical tensions have influenced long-term bond yields, making it more costly to finance homes.
If not for the war-related spike in inflation, the average 30-year fixed mortgage rate could be in the mid-to-upper 5’s,” said Ted Rossman, Bankrate principal analyst.
First-time buyers composed 35% of home purchases in May, the highest since June 2020. Historically, this group accounts for 40% of sales. Potential buyers are benefiting from friendlier market trends, with median list prices dropping 2.4% from last year—the biggest decline since 2017.
Although there are more options on the market, inventory remains below historical averages. By the end of May, there were 1.55 million unsold homes—up 3.3% from April and 0.6% from the previous May. However, this figure remains lower than the pre-pandemic norm of roughly 2 million homes for sale.
May’s inventory level corresponds to a 4.5-month supply at the current sales rate. Traditionally, a balanced market between buyers and sellers is characterized by a 5- to 6-month supply.