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US Pending Home Sales Surge in May: NAR

H.S. Borji
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US Pending Home Sales Surge in May: NAR

Contracts to buy existing homes surged in May, adding further evidence that home buying was increasing at a marked pace in the second quarter.

The pending home sales index increased 6.1 percent in May, following an upwardly revised gain of 0.5, the prior month, the National Association of Realtors reported today. The median estimate of economists called for an increase of 1.5 percent.

Compared to May 2013, pending home sales were down 6.9 percent, after a 9.3 percent decline in the 12 months through April.

Contract signings rebounded for the third consecutive month in May and at the fastest pace since April 2010. The figures suggest home buying was rebounding sharply after a disappointing first quarter.

Compared to April, contract activity increased in all four regions of the US.

Pending home sales are a key indicator of the housing market, allowing economists to forecast the pace of existing home sales, which are based on contract closings.

“Sales should exceed an annual pace of five million homes in some of the upcoming months behind favourable mortgage rates, more inventory and improved job creation,” said NAR chief economist Lawrence Yun. “However, second-half sales growth won’t be enough to compensate for the sluggish first quarter and will likely fall below last year’s total.”

Despite the sharp increase in contract activity, the NAR cautioned that affordability and access to credit are still major areas of concern, especially for first-time buyers, who accounted for 27 percent of existing home sales in May.

Last week the NAR said existing home sales advanced 4.9 percent in May to a seasonally adjusted annual pace of 4.89 million. The gains were partly attributed to moderating house prices.

The median sales price of a previously-owned home in May was $213,400, up 5.1 percent over the previous 12 months.

New home sales, which account for less than ten percent of the residential real estate market, surged 18.6 percent in May to a seasonally adjusted annual pace of 504,000, the Commerce Department reported last week.

Underlying the sharp increase in home buying is a stronger employment outlook. US employers added 217,000 nonfarm payrolls in May, following a revised gain of 282,000 in April that was the biggest in more than two years.

The Labor Department on Friday is expected to show US employers added 213,000 nonfarm jobs in June.

With mortgage rates expected to rise in the next 12 months, improvements in the labour market will be relied upon to drive the next phase of the housing recovery. According to the NAR, mortgage rates are likely to rise to 5.5 percent next year.

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