May home sales nosedive despite 'softer' price growth

Normally a top month for home purchases, May sales plummeted from the year-over-year average, with the coronavirus effect socking the housing market for the second straight month, according to Remax.

Closed transactions dove 33.7% year-over-year and 3.9% from April 2020. Annual sales dropped by double digits in all 53 of the top housing markets analyzed. Des Moines, Iowa, sustained the smallest decrease of 14.3%, followed by 15.5% in Little Rock, Ark., and 15.6% in Richmond, Va. On the other end, the number of homes sold in Detroit plummeted 64.8%, while tumbles of 61.4% in Pittsburgh and 57.9% in Miami trailed that.

Bottlenecked inventory strained matters further. May's housing supply dropped to near-12-year lows, plunging 25% year-over-year and 4% month-to-month. Only three of the 53 metro areas posted annual increases. Inventory rose 12.7% in Indianapolis, 4.3% in Wichita, Kan., and 1% in Chicago.

Overall, housing supply slipped to 2.5 months from 3 months the year before and 3.7 months in April. A supply of 6 months defines market equilibrium. The average days on market held at 46 days from April but dropped from 48 in May 2019.

The tight inventory was likely behind a rise in home values in May, according to a separate data analysis by Radian. Prices grew at a 7.8% annual rate and 4.5% month-to-month, according to the mortgage insurer’s home price index. The median single-family sales price increased to $254,826, a three-month gain of 5.5%, edging down from 5.6% in the preceding three month span.

"Home price gains across the U.S. slowed in May, a month typically known for accelerating activity," said Steve Gaenzler, SVP of data and analytics at Radian. "Softer home price appreciation across the U.S. compared to the prior month suggests that the full impact of COVID nationally or locally on home prices may not yet be felt, but we are encouraged by some of our leading indicators."

Many watching the market are pinning their hopes on a turnaround as stay-at-home orders lift.

"We believe the spring selling season was largely deferred for several weeks," Adam Contos, Remax CEO, said in a press release. "And, with home being the center of people's lives this year, we could see the effect of pent-up demand play out in a significant way. Absent another major coronavirus wave, inventory levels and the unemployment rate may well be the governors on how strong the housing market performs this year."

One of the indicators for the housing market is construction. While housing starts increased to a lesser degree than expected in May — and far below year-ago levels — they gained traction from the month before.

"Housing construction inched up in May, but single-family starts remained almost 18% below last year's pace, and multifamily starts were 33% lower. At only 9% below last year, new permits are recovering more quickly and are an indication that the pace of construction should continue to improve in the months ahead," said Mike Fratantoni, chief economist of the Mortgage Bankers Association.

"MBA's data on purchase applications clearly show that housing demand is brisk, supported by record-low mortgage rates,” he said. “However, unless additional housing inventory is available, this increase in demand cannot be matched by the expected robust increase in home sales. The only bright side of low supply levels are that they should continue to support current home values."