Home Prices Growing "Too Fast;" More Homebuilding Needed -NAR

Sales of existing homes rose again in May and prices posted the biggest annual gain in eight years the National Association of Realtors® (NAR) said today. Total existing home sales were at a seasonally adjusted annual rate of 5.18 million units in May, 4.2 percent above the 4.97 million unit pace reported for April and 12.9 percent more than in May 2012 when the annual rate was 4.59 million units.

Sales have now risen compared to year-earlier figures for 23 months and May was the best market for existing home sales since November 2009 during the tax stimulus when sales jumped to 5.44 million. Existing home sales include completed transactions of single family homes, townhomes, condominiums, and cooperative apartments.

Single-family home sales rose 5.0 percent to a seasonally adjusted annual rate of 4.60 million in May from 4.38 million in April, and are 12.7 percent higher than the 4.08 million-unit pace in May 2012.  Existing condominium and co-op sales slipped 1.7 percent to an annualized rate of 580,000 units in May from 590,000 in April, but are 13.7 percent above the 510,000-unit level a year ago. 

The national median price for all existing housing type was $208,000 in May, a 15.4 percent increase over May 2012. The national median price has now risen for 15 consecutive months on a year-over-year basis; the last time this happened was from March 2005 to May 2006. May was the sixth straight month that those annual increases have been in double digits and May's was also the strongest price gain since October 2005 when median prices jumped 16.6 percent from a year earlier, the largest increase ever recorded by NAR. .

Lawrence Yun, NAR chief economist, said the recovery is strengthening and to expect limited housing supplies for the balance of the year in much of the country.  "The housing numbers are overwhelmingly positive.  However, the number of available homes is unlikely to grow, despite a nice gain in May, unless new home construction ramps up quickly by an additional 50 percent," he said.  "The home price growth is too fast, and only additional supply from new homebuilding can moderate future price growth."

The median existing single-family home price was $208,700 in May, up 15.8 percent above a year ago, and also the strongest increase since October 2005 when it jumped 16.9 percent from a year earlier. The median existing condo price was $202,100 in May, which is 11.8 percent above May 2012.

Foreclosures accounted for 11 percent of May Sales and 7 percent were short sales. These sold at an average discount of 15 percent and 12 percent respectively compared to market sales. The aggregate of distressed sales, 18 percent, was unchanged from April and, with April the lowest share since NAR began tracking the metric in October 2008. One year ago distressed home sales had a 25 percent market share. The lower share of distressed sales account for some of the home price gain, NAR said.

All-cash sales rose slightly in May, from 32 percent of sales in April to 33 percent. Investor purchases were 18 percent of sales compared to 19 percent in April and first-time buyers accounted for 28 percent of purchases compared to 29 percent the previous month.

Total housing inventory at the end of May rose 3.3 percent to 2.22 million existing homes available for sale, which represents a 5.1-month supply² at the current sales pace, down from 5.2 months in April.  Listed inventory is 10.1 percent below a year ago, when there was a 6.5-month supply.

NAR President Gary Thomas said market conditions today are vastly different than during the housing boom.  "The boom period was marked by easy credit and overbuilding, but today we have tight mortgage credit and widespread shortages of homes for sale," he said.

"The issue now is pent-up demand and strong growth in the number of households, with buyer traffic 29 percent above a year ago, coinciding with several years of inadequate housing construction.  These conditions are contributing to sustainable price growth," Thomas said.

Marketing time continues to drop, requiring a median time of 41 days in May compared to 46 days in April and 72 days in May 2012. This marketing period is nearing the shortest selling period NAR has recorded - 4 weeks in both 2004 and 2005. Short sales were on the market for a median of 79 days, while foreclosures typically sold in 43 days and non-distressed homes took 39 days. Forty-five percent of all homes sold in May were on the market for less than a month. 

Regionally, existing-home sales in the Northeast rose 1.6 percent to an annual rate of 650,000 in May and are 8.3 percent above May 2012.  The median price in the Northeast was $269,600, up 12.3 percent from a year ago.

Existing-home sales in the Midwest jumped 8.0 percent in May to a pace of 1.21 million, and are 16.3 percent higher than a year ago.  The median price in the Midwest was $159,800, up 8.2 percent from May 2012.

In the South, existing-home sales rose 4.0 percent to an annual level of 2.09 million in May and are 16.1 percent above May 2012.  The median price in the South was $183,300, which is 15.0 percent above a year ago.

Existing-home sales in the West increased 2.5 percent to a pace of 1.23 million in May and are 7.0 percent above a year ago.  With the tightest regional supply, the median price in the West was $276,400, up 19.9 percent from May 2012.