Housing Demand Rising

Hot price levels right in LGI Homes wheelhouse.

Sales of previously owned homes increased in May to the highest level in nearly a decade, another sign of durable demand in the housing market despite ongoing headwinds.

Existing-home sales rose 1.8% to a seasonally adjusted annual rate of 5.53 million, the National Association of Realtors said Wednesday. That was 4.5% higher compared to a year ago and the highest pace since February 2007.

Economists surveyed by MarketWatch had forecast a 5.55 million rate, and April’s pace, previously reported as 5.45 million, was revised down fractionally to 5.43 million.

Though sales are strong, constrained inventory continues to dog the market, pushing prices higher and out of reach of many buyers. The median price in May was $239,700, 4.7% higher than a year ago.

While it’s often said that real estate is about “location, location, location,” NAR Chief Economist Lawrence Yun told reporters that “affordability, affordability, affordability” is the market’s new mantra.

At the current pace of sales, there are 4.7 months’ worth of homes available on the market, the same as in April and well below the 6 months that’s considered a marker of a balanced market. Properties stayed on the market for 32 days in May, the shortest period since NAR began tracking that measure in 2011.

First-time buyers made up 30% of all purchases in May, well below the 40% they’ve traditionally represented.

Affordability is being helped for now by ultra-low mortgage rates, but Yun noted that could change if rates start to rise.