Strong Demand Drives Sales of Existing Homes

Sales of previously owned homes climbed in May to the highest level in more than nine years, indicating that demand for residential real estate remains robust, National Association of Realtors data showed Wednesday.

Contract closings climbed 1.8% to a 5.53 million annual rate (forecast was 5.55 million), the fastest pace since February 2007. Sales increased 6.3% from May 2015 before seasonal adjustment. The median price of an existing home rose 4.7% from May 2015 to a record $239,700. Inventory of available properties decreased 5.7% from May 2015 to 2.15 million units.

Housing demand is showing signs of improving from 2015 when 5.25 million homes were sold, the best year for Realtors since before the last recession. A firm labor market, steadily rising wages and low interest rates are combining to give residential real estate some room to run. More supply of new and existing homes that helps moderate price growth would help make housing more affordable for first-time buyers and provide an added spark for the market and the economy.

"The housing market is clearly moving in the right direction, and it's going to contribute more to economic growth going forward," said Ryan Sweet, a senior economist at Moody's Analytics Inc. in West Chester, Pa. Still, "Inventories are very lean. That's going to come at the expense of future sales. Whatever is coming onto the market, it is picking up buyers very fast," Lawrence Yun, chief economist at the National Association of Realtors in Washington, said to reporters as the data were released. "There's a lot of yellow lights flashing to say watch out for affordability."

Sales increased most in the West, where contract closings climbed 5.4% to a 1.18 million pace from a month earlier. At the current pace, it would take 4.7 months to sell inventory of homes, matching April. Less than a five-month supply is a tight market, the Realtors group said.

Properties were on the market for 32 days in May, down from 40 days at the same time a year ago and the shortest since the NAR began tracking figures in 2011.

Single-family home sales increased 1.9% to an annual rate of 4.9 million while purchases of multifamily properties increased 1.6% to a 630,000 pace. First-time buyers accounted for 30% of all sales, down from 32% in April.