May Home Sales Rebound
Low Interest Rates Spark Demand
Despite tight inventory and rising prices, home sales surged in May to the highest level seen since 2005. This surprised economists who were expecting declines. Month-over-month sales surged 8% in May, which was much higher than the 1% decrease economists predicted. Year-over-year sales were up 13%. Home sales fell sharply in April, leading some to predict the pandemic housing boom was coming to an end.
The May rebound in home sales came as interest rates fell below 3%. There was also an increase in inventory, enabling more buyers to find what they were looking for. Much of the activity is happening on the high end of the market, where there is more inventory. The low end of the market isn’t seeing much of an increase in sales as first-time buyers compete for what little inventory is available.
Inventory Increases Slightly
The lack of existing homes to purchase has played a major role in sales during the past few months. In May the inventory of existing homes for sale increased slightly when compared to April, partly driving the jump in sales. Inventory is still at historic lows, down 20% from last year.
Sales of new homes fell close to 6% in May as builders passed higher supply and labor costs to home buyers. The median price for a new construction home was 18% higher. Even though the cost of lumber has declined in the past few weeks, prices are still much higher than they were prior to the pandemic.
Sales Surge in Northeast
The rebound in home sales took place across all regions in May, but the Northeast led the charge. Month-over-month sales were up 15.5% in the region. Meanwhile, in the Midwest sales increased 6.7%. Sales climbed 4.9% in the South and 10.9% in the West.
Despite record prices for new and existing homes, the housing-market boom has continued. Interest rates are low and Americans are still enthusiastic about buying homes, even as many return to pre-pandemic routines.
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