WASHINGTON – The nation’s housing market showed unexpected strength in May as home sales climbed beyond what economists had predicted, according to data released Tuesday by the National Association of Realtors.
Sales of previously owned homes rose 3.2% during the month, reaching a seasonally adjusted annual pace of 4.170 million units. Economic forecasters surveyed by Reuters had anticipated a more modest increase to 4.07 million units.
Regional data showed gains across the Northeast, South, and Midwest, while Western markets remained flat. Compared to the same period last year, home resales were up 3.2% in May, with transactions recorded when contracts reached closing.
“More Americans are on the move, with home sales rising to the highest level since December,” said Lawrence Yun, the NAR’s chief economist. “This is great news for the housing market.”
The May sales figures likely represent purchase agreements completed during March and April. Mortgage interest rates began climbing in March amid Middle East tensions involving the U.S. and Israel’s actions against Iran, before moderating somewhat by late April when a ceasefire took effect. The ongoing regional conflict has contributed to inflation pressures through elevated energy costs and higher prices for goods transported through the Strait of Hormuz, which has pushed up U.S. Treasury yields that mortgage rates typically follow.
Since the conflict began in late February, the standard 30-year fixed mortgage rate has risen approximately 50 basis points. With Federal Reserve rate cuts becoming less likely due to persistent inflation and strong employment numbers, borrowing costs for homebuyers are expected to stay high.
Government economists predict Wednesday’s Consumer Price Index report will show inflation accelerated to 4.2% annually in May, marking the sharpest increase since April 2023. April’s CPI reading was 3.8%.
The NAR’s measure of housing affordability showed improvement, rising to 105.6 in May from 97.5 one year earlier. However, inflation continues to outpace wage increases. The typical existing home sold for $429,300 last month, representing a 1.3% increase from May of the previous year.
Available housing inventory grew 3.3% to 1.55 million units, though supply levels remain significantly below pre-pandemic standards despite the typical May seasonal increase. Year-over-year inventory was up just 0.6%. Based on current sales activity, the existing supply would be exhausted in 4.5 months, slightly faster than the 4.6-month timeline from a year ago.
Properties stayed on the market for a median of 29 days, up from 27 days in May 2023. First-time purchasers represented 35% of all sales, an increase from 30% the previous year. Industry experts indicate that a healthy housing market typically requires first-time buyers to comprise 40% of transactions.
