Existing-Home Sales Flattening, Restrained by Low Inventory
Existing-home sales rose a modest 1.1 percent in May, held back by a tight supply of available existing homes for sale. Compared to a year ago, existing-home sales were up 2.7 percent. The inventory of homes for sale rose 2.1 percent to 1.96 million, pushing the months’ supply (the total inventory divided by the current selling rate) to 4.2, a 2.4 percent increase from the prior month. However, a 4.2-month supply is extremely low by historical standards.
Broken down into single-family homes and condo/coop units, single-family homes sales rose 1.0 percent to 4.98 million at a seasonally adjusted annual rate, compared to a 1.6 percent rise for condos to a 640,000-unit pace. Among the major regions, the Northeast led the way in sales, rising 8.1 percent for the month to a 670,000-unit pace. Sales in the West and South were up 2.9 percent and 2.0 percent respectively, while sales in the Midwest fell 5.5 percent in May. Measured from a year ago, sales in the Northeast, West, and South all had gains between 3.1 percent and 4.1 percent while sales in the Midwest fell 0.8 percent. The inventory of existing single-family homes for sale rose 2.4 percent to 1.74 million, boosting the months’ supply to 4.2 from 4.1 in April.
Sales of condos and coops in the West rose 6.7 percent for the month, while sales increased 3.6 percent in the South. Sales in the Northeast were unchanged, posting a 110,000-unit pace, while sales in the Midwest fell 11.1 percent. The total inventory of existing condos and coops for sale rose 0.4 percent for the month to 224,000, leaving the months’ supply unchanged at 4.2. Like the single-family segment, a 4.2 months’ supply is extremely low by historical measures.
A more complete picture of the housing market will be available with the release of new-home sales data on Friday, June 23. Last Friday, the Census Department reported that both housing starts and new-housing permits fell in May, down 5.5 percent and 4.9 percent respectively, suggesting builders are being careful not to overbuild. Despite the tight housing market, new housing starts are up just 1.4 percent from a year ago.
Consumer fundamentals — a strong labor market, high levels of consumer confidence, and relatively healthy balance sheets — remain positive factors for the housing market. However, the combination of tight supply, rising prices, and higher interest rates may restrain gains in the months and quarters ahead.
Robert Hughes
Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.
