U.S. existing home sales rose 3.2% in May to a seasonally adjusted annual rate of 4.17 million units, the National Association of Realtors (NAR) reported. This marks the highest pace since December 2023 and exceeds economists' expectations of 4.07 million units. Sales increased in the Northeast, South, and Midwest but remained unchanged in the West. The median home price reached a record high of $429,300, up 1.3% year-over-year.
Market Dynamics and Challenges
Rising mortgage rates and tight inventory continue to pose challenges. The average 30-year fixed-rate mortgage has increased by about 50 basis points since the start of the year due to geopolitical tensions and inflation. The NAR's housing affordability index improved to 105.6 in May from 97.5 a year ago, though inflation outpaces wage growth. Lawrence Yun, NAR's chief economist, noted that affordability improvements and lower mortgage rates compared to last year are helping drive demand.
Regional and Economic Context
Sales rose in all regions except the Northeast, where supply remains constrained. The U.S. housing market has been in a slump since 2022, with sales hovering around 4 million units annually, far below the historic norm of 5.2 million. Inventory rose 3.3% month-over-month to 1.55 million units, but supply remains tight at a 4.5-month pace. Yun cautioned that uncertainty around oil prices and mortgage rates could impact future sales.
Long-Term Outlook
Economists predict the Consumer Price Index (CPI) surged 4.2% year-over-year in May, the largest gain since April 2023. With inflation and a resilient labor market, mortgage rates are likely to remain elevated. Yun suggested that sales could improve if rates drop closer to 6%. The housing market's recovery remains uncertain amid economic and geopolitical risks.