US home sales drop as prices surge to a high record
U.S. home sales fell for a fourth straight month in May as record high prices amid low inventory frustrated potential buyers, a trend that could persist for while, with builders unable to deliver more houses because of expensive lumber.
Existing home sales dropped 0.9% to a seasonally adjusted annual rate of 5.80 million units last month, back to their pre-pandemic level, the National Association of Realtors said on Tuesday. Sales fell in the Northeast, West and the densely populated South, but rose in the Midwest.
Economists polled by Reuters had forecast sales falling to a rate of 5.72 million units in May.
Home resales, which account for the bulk of U.S. home sales, surged 44.6% on a year-on-year basis. The annual increase was, however, distorted by the plunge in sales in May 2020, when the economy was reeling from mandatory shutdowns of non-essential businesses to slow the first wave of COVID-19 cases.
The COVID-19 pandemic fueled demand for houses as millions of Americans switched to remote work and schooling. Supply was already tight before the pandemic. Some homeowners were reluctant to list their homes because of fear of contracting the virus from potential buyers touring their properties.
Some elderly Americans likely delayed downsizing due to the pandemic. The virus has disrupted labor supply at saw mills and ports, causing shortages of lumber and other raw materials. That is limiting builders’ ability to ramp up construction of new homes. The government last week reported a moderate rebound in homebuilding in May and a drop in permits.
With inventory tight, bidding wars are rising, threatening to price some first-time buyers out of the market. The median existing house price accelerated a record 23.6% from a year ago to an all-time high of $350,300 in May.
Economists do not believe another housing bubble is developing, noting that the surge is being mostly driven by a mismatch between supply and demand, rather than poor lending practices, which triggered the 2008 global financial crisis. But the rapidly rising prices could feed inflation.
There were 1.23 million previously owned homes on the market in May, down 20.6% from a year ago. At May’s sales pace, it would take 2.5 months to exhaust the current inventory, down from 4.6 months a year ago. A six-to-seven-month supply is viewed as a healthy balance between supply and demand.
Properties typically remained on the market for 17 days in May, down from 26 days in May 2020. Eighty-nine percent of the homes sold last month were on the market for less than a month. First-time buyers accounted for 31% of sales in May, down from 34% a year ago.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)