Existing-home sales increased 1.1% in May to a seasonally adjusted annual rate of 5.62 million, according to data reported by the National Association of Realtors.
The increase came as a bit of a surprise to many in the real estate industry. A shortage of available and affordable homes has resulted in many frustrated buyers unable to find a suitable property to purchase. This has caused bidding wars, and the cost of once-affordable homes across the country has escalated in response.
Reuters reported many economists were anticipating existing homes to sell at a rate of 5.55 million units in May. In other words, they expected a decrease of 0.5% rather than the increase of 1.1%. If anything, this is a testament to the high demand in the real estate market. Smart buyers will get pre-approved for a residential mortgage to make their buying process a smooth one.
Sales were up year-over-year as well. Last month's sales pace was 2.7% higher than it was in May 2016.
"The job market in most of the country is healthy and the recent downward trend in mortgage rates continues to keep buyer interest at a robust level," Lawrence Yun, chief economist of the NAR, said in a press release. "Those able to close on a home last month are probably feeling both happy and relieved."
Yun went on to explain that homes are selling in record time, and with many homes attracting bids from multiple buyers, prices have begun to escalate rapidly. NAR found the average home stayed on the market for 27 days, down from the 29 days seen in April. In some markets, sales were turned around in even faster time. The average time on the market for a home in the Seattle region was just 20 days; in San Francisco, it was 24 days.
May marked the fastest pace that homes have sold at since NAR began keeping track of this statistic in May 2011. In May 2016, the typical U.S. home was sold in 32 days.
Zillow's Chief Economist Svenja Gudell pointed out 55 percent of homes sold in less than a month's time. She added that buying conditions aren't exactly in the buyer's favor, as many sellers have their choice of several offers on a home. However, given the strong demand and current positive economic indicators, she doesn't anticipate demand to slow down in the near future, "nor for the pendulum to meaningfully swing back in favor of buyers," Gudell wrote in a research note.
Yun agrees with this assessment, but notes some challenges will have an impact on buyers' abilities to make a move on a home.
"Home prices keep chugging along at a pace that is not sustainable in the long run," Yun explained. "Current demand levels indicate sales should be stronger, but it's clear some would-be buyers are having to delay or postpone their home search because low supply is leading to worsening affordability conditions."
Inventory is clearly one of, if not the, largest obstacle in the housing market at present. And, with dwindling space to build and a lack of skilled labor, contractors are struggling to keep up with demand. According to the Census Bureau's analysis of May housing starts, this challenge may not get easier in the near future. Housing starts were down 5.5% compared to April, and building permits were 4.9% lower compared to a month earlier. However, the 1,164,000 privately-owned housing completions in May, a 5.6% increase over April, will ideally offer some relief.
"Those hoping to buy an entry-level, single-family home continue to see minimal choices," explained NAR President William E. Brown, who works as a real estate agent in California. "The best advice for these home shoppers is to know what you can afford, lean on the guidance of a Realtor® and act fast once an ideal property within the budget is listed."
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