- Existing home sales slumped 9.7% to a seasonally adjusted annual rate of 3.91 million units in May, the National Association of Realtors said Monday.
- Sales now sit at their lowest in nearly a decade, yet the association sees May representing the metric’s bottom before bouncing back through the rest of 2020.
- “Home sales will surely rise in the upcoming months with the economy reopening,” Lawrence Yun, chief economist at the NAR, said in a statement.
- New home construction needs to pick up through the summer to meet demand and avoid a price spike, Yun added.
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Existing home sales tanked 9.7% in May but a housing-market recovery is on the horizon, the National Association of Realtors said Monday.
Sales reached a seasonally adjusted annual rate of 3.91 million units last month, sliding 26.6% from the year-ago period to its lowest level in nearly a decade. The plunge follows similarly sharp declines in March and April as the coronavirus pandemic slammed the US economy. Yet May’s dismal reading likely marks a bottom for the market before it recovers through the rest of 2020, the association said.
“Sales completed in May reflect contract signings in March and April – during the strictest times of the pandemic lockdown and hence the cyclical low point,” Lawrence Yun, chief economist at the NAR, said in a statement. “Home sales will surely rise in the upcoming months with the economy reopening, and could even surpass one-year-ago figures in the second half of the year.”
Economists were also optimistic despite the May report falling below expectations. Experts expected sales to land at 4.09 million last month, according to Pantheon Macroeconomics, but the miss isn’t cause for concern.
“We aren’t worried about the undershoot to consensus, which was signalled by the weakness of the April pending sales index,” Ian Shepherdson, chief economist at Pantheon, said, adding the relative labour-market stability among homebuyers helped insulate the population from coronavirus fallout.
As the pandemic’s pressure is lifted, new obstacles stand to curtail a housing market rebound. Total housing inventory reached 1.55 million by the end of last month, up 6.2% from April. Unsold inventory can meet 4.8 months of sales at the current pace, NAR said, but a pickup in demand could quickly exhaust supply and hinder a market recovery.
“New home construction needs to robustly ramp up in order to meet rising housing demand,” Yun said. “Otherwise, home prices will rise too fast and hinder first-time buyers, even at a time of record-low mortgage rates.”
Other housing-market indicators suggest homebuilders will rise to the occasion. Housing starts leaped 4.3% in May to a seasonally adjusted annual rate of 974,000 units per month, the Commerce Department announced Wednesday. Permits for future construction rocketed 14.4% last month to a rate of 1.22 million units.
Homebuilder sentiment showed a similarly hopeful forecast. The National Association of Homebuilders/Wells Fargo Housing Market Index showed sentiment spiking a record 21 points to 58 in June from 37. By landing above 50, the reading signalled a return to a positive market outlook.
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