US existing home sales climb 5.1% in May, but prices also keep jumping

US existing home sales beat economists's May expectations, accelerating to their fastest pace since November 2009. But the possibility of buyers shut out of the market still looms thanks to rising prices and mortgage rates.

Larry Downing/Reuters/File
A "sold" sign hangs in front of a house in Vienna, Virginia in this file photo taken March 27, 2014. US existing home rose 5.1 percent in May, but home prices continue to go up as well.

US existing home sales rose 5.1 percent in May to their highest pace since November 2009, after bouncing back from April’s disappointing numbers. But analysts warn that rising home prices and mortgage rates could inevitably price more buyers out of the market.

Home sales increased to a seasonally adjusted annual rate of 5.35 million last month, according to a report released Monday by the National Association of Realtors (NAR). The increase in home sales was refreshing after April’s numbers, when home sales dropped 3.3 percent to 5.09 million.

Sales have now increased year-over-year for eight consecutive months and are 9.2 percent above the level seen a year ago. Each region of the US saw some gains in sales, though the Northeast led the charge with an 11.3 percent sales increase. NAR’s chief economist Lawrence Yun said in the report that sales were “solid,” though people will need to keep an eye out on new construction and supply.

“Overall supply still remains tight, homes are selling fast and price growth in many markets continues to teeter at or near double-digit appreciation. Without solid gains in new home construction, prices will likely stay elevated — even with higher mortgage rates above 4 percent."

The report shows home sales performed slightly better than analysts had predicted. Economists estimated home sales would rise 4.8 percent to a seasonally adjusted annual rate of 5.28 million homes, according to a FactSet survey via The Associated Press.

While the gains in home sales is good news, there is still concern over who can afford them. The NAR reported the median existing-home price in May was $228,700. Not only this is up nearly 1 percent from April’s median prices, but it also shows a 7.9 percent increase from a year ago and marks the 39th consecutive month of year-over-year price gains.

Meanwhile, the gap between minimum wage and housing affordability continues to widen. House prices in the US jumped 17.3 percent between 2012 and 2014, as previously reported by The Christian Science Monitor. During that same period, wages slightly ticked up 1.3 percent.

Millennials in particular are left out of several housing markets; they are priced out of 13 of the 50 largest metropolitan areas in the US, according to Bloomberg. It still leaves Millennials with options, but the 13 cities that are beyond their means are some of the most desirable areas of the country, like San Jose, New York, and Denver. To be able to live in San Jose, the average Millennial would have to earn an additional $80,000 to afford a mortgage in the city. It makes New York, where Millennials would need an extra $6,550 to close the gap between their wages and a mortgage, look like a bargain.

Another concern is the hike in mortgage rates. Up until last week's drop, mortgage rates had been increasing for weeks. Freddie Mac reported on Friday that 30-year and 15-year rates barely trickled down to 4 percent and 3.23 percent. FactSet economists also warned that the recent sales gains could be short-lived if prices go up sharply enough to price potential buyers out of the market.

There's a hopeful sign, however, in that a growing proportion of people buying homes in May were first-time buyers. The percent share of first-time buyers rose to 32 percent in May, up from 30 percent in April and matching the highest share since September 2012. 

"Recent policy changes are supporting increased activity," IHS Global Insight economists Patrick Newport and Stephanie Karol write in an e-mailed report. "Both Fannie Mae and Freddie Mac have introduced low-down-payment products, aimed at helping younger people buy their first home. These “conventional 97” programs are tailored towards helping people with little savings but good credit scores – higher than those required for conventional loans – buy single-family properties. Fannie Mae’s program has been available since December; Freddie Mac’s has been around since mid-March."

"More first-time buyers are expected to enter the market in coming months, but the overall share climbing higher will depend on how fast rates and prices rise,” Yun added.

You've read  of  free articles. Subscribe to continue.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.