WASHINGTON (Reuters) - U.S. home resales rose in May to a more than nine-year high amid low mortgage rates, pointing to sustained housing market strength that should keep the economy on solid ground.
The fairly strong existing home sales report on Wednesday added to retail sales and international trade data in painting an upbeat picture of the economy in the second quarter. A sharp slowdown in job growth in May had cast doubts on whether growth was picking up after almost stalling in the first quarter.
“The housing market recovery is truly back on track ..., which should reinforce confidence that the economic recovery is moving in the right direction,” said Millan Mulraine, deputy chief economist at TD Securities in New York.
The National Association of Realtors said existing home sales gained 1.8 percent to an annual rate of 5.53 million units last month, the highest level since February 2007.
April’s sales pace was revised down to 5.43 million units from the previously reported 5.45 million units. Economists had forecast sales rising 1.1 percent to a 5.54 million-unit pace in May. Sales were up 4.5 percent from a year ago.
U.S. financial markets were little moved by the report as investors nervously awaited the outcome of Britain’s referendum on European Union membership on Thursday.
Despite rising for three straight months, existing home sales remain constrained by a shortage of homes available for sale.
The dearth of properties is keeping home prices elevated, sidelining some first-time buyers. The median house price soared 4.7 percent from a year ago to a record $239,700 last month. The rate of increase has, however, slowed from last year’s brisk pace.
Demand for housing is being driven by historically low mortgage rates, improving household formation as some young adults find employment and older Americans move into smaller and cheaper homes.
The 30-year fixed mortgage rate averaged 3.60 percent in May, the lowest level since May 2013, according to mortgage finance firm Freddie Mac. Home resales are likely to increase in June. A separate report from the Mortgage Bankers Association showed mortgage applications increased 2.9 percent last week.
“The extended run of extraordinarily low mortgage rates is clearly bringing trade-up buyers back into the market,” said Mark Vitner, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.
“Many buyers might have been hesitant to give up their current low-rate mortgage that they refinanced into a few years ago, but now are looking at essentially the same mortgage rates that they were three years ago.”
Last month, existing home sales surged 4.1 percent in the Northeast and climbed 4.6 percent in the South. Sales in the West, which has seen a strong increase in house prices amid tight inventories, jumped 5.4 percent.
In the Midwest, sales tumbled 6.5 percent last month. The decline, however, followed recent hefty gains.
While the number of unsold homes on the market in May rose 1.4 percent from April to 2.15 million units, supply was down 5.7 percent from a year ago.
In May, new listings typically stayed on the market for 32 days, the shortest period of time since the NAR started tracking the data. That was down from 39 days in April and 40 days a year ago.
At May’s sales pace, it would take 4.7 months to clear the stock of houses on the market, unchanged from April. A six-month supply is viewed as a healthy balance between supply and demand.
Economists say builders will need to ramp up construction of new homes to meet the pent-up demand. House price increases are outstripping wage gains. While that could make home purchasing expensive for first-time buyers, it is boosting equity for homeowners and enticing some to put their homes on the market.
“We expect moderate price appreciation to increase homeowner equity, encouraging inventory expansion and sustaining the pace of existing home sales through 2016,” said Kristin Reynolds, a U.S. economist at IHS Global Insight in Lexington, Massachusetts.
Last month, the share of first-time buyers fell to 30 percent from 32 percent in both April and a year ago.
Reporting by Lucia Mutikani; Editing by Paul Simao