U.S. Existing Home Sales Jumped in May

  Existing home sales in the US surged 4.2% to 5.18 million annualized units in May 2013 from an unrevised 4.97 million in April. Market expectations had been for sales of 5.0 million annualized units. The inventory of homes available for sale climbed 3.3% to a nine-month high of 2.22 million units. With the pace of sales exceeding the inventory gain, the month’s supply of unsold homes fell to 5.1 from 5.2 in the previous month and remains well below the historical average of 6.4 months as tight supply conditions persist in the resale market. The median price of existing homes jumped 15.4% on a year-over-year basis that marked the largest price increase since October 2005. With the surge in existing home sales in May, resale activity is now up by 2.7% thus far in the second quarter of 2013 over the first-quarter 2013 average, thereby indicating that the trend of consecutive quarterly gains that began in the third quarter of 2011 will likely extend to eight. We anticipate that the upward trend in the demand for housing, thinning inventories, and firming prices augur well for the residential real estate market to continue its recovery from recessionary lows and provide a key support to the ongoing improvement of the overall economy as market conditions continue to normalize during the forecast horizon. There were 5.18 million existing homes sold in the US in May 2013 on a seasonally adjusted and annualized basis, which was a 4.2% jump from the unrevised 4.97 million annualized units sold in April. The level of sales exceeded the 5.0 million units expected by the market and represented the highest level of sales since tax stimulus measures boosted sales in November 2009. The rise in resale activity in May reflected a surge in sales of single-family homes (5.0%) to 4.6 million annualized units, while sales of condos and co-ops dipped (-1.7%) for the third consecutive month to 0.58 million. Increases in existing-home sales were recorded across the country with the Midwest leading the gains (8.0%) followed by the South (4.0%), West (2.5%), and Northeast (1.6%). The absolute number of existing homes available for sale rose 3.3% to a nine-month high of 2.22 million units in May. At the current pace of sales, it would take 5.1 months to clear this inventory of unsold homes, which is down from 5.2 in the previous month and still well below the historical average of 6.4 months. With resale activity constrained by tight-supply conditions and the share of distressed sales shrinking (steady at 18% of total sales from April but down from 25% in May 2012), house prices continue their upward trend. The US$208,000 median sales price represented a 15.4% increase over the year-ago level, was the largest jump since October 2005, and extended the streak of consecutive year-over-year price gains that began in March 2012. With the surge in existing home sales in May, resale activity is now up by 2.7% thus far in the second quarter of 2013 over the first-quarter 2013 average, thereby indicating that the trend of consecutive quarterly gains that began in the third quarter of 2011 will likely extend to eight. We anticipate that the upward trend in the demand for housing, thinning inventories, and firming prices augur well for the residential real estate market to continue its recovery from recessionary lows and provide a key support to the ongoing improvement of the overall economy as market conditions continue to normalize during the forecast horizon.   RBC ECONOMICS RESEARCH – DAILY ECONOMIC UPDATE – June 20, 2013