Lower Inventory Levels Constrain U.S. Home Sales in May, Says NAR

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According to the National Association of Realtors (NAR), limited supplies of housing inventory held back existing-home sales in May, but sales maintained a strong lead over year-ago levels and home prices are on a sustained uptrend in all regions.

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, declined 1.5 percent to a seasonally adjusted annual rate of 4.55 million in May from 4.62 million in April, but are 9.6 percent above the 4.15 million-unit pace in May 2011.

Lawrence Yun, NAR chief economist, said inventory shortages in certain areas have been building all year.  "The slight pullback in monthly home sales is more likely due to supply constraints rather than softening demand.  The normal seasonal upturn in inventory did not occur this spring," he said.  "Even with the monthly decline, home sales have moved markedly higher with 11 consecutive months of gains over the same month a year earlier."

There are broad-based shortages of inventory in the lower price ranges in much of the country except the Northeast, and in the West supply is extremely tight in all price ranges except for the upper end.  "Realtors in Western states have been calling for an expedited process to get additional foreclosed properties onto the market because they have more buyers than available property," Yun added.  Widespread inventory shortages also are found in much of Florida.

Total housing inventory at the end of May slipped 0.4 percent to 2.49 million existing homes available for sale, which represents a 6.6-month supply at the current sales pace; there was a 6.5-month supply in April.  Listed inventory is 20.4 percent below a year ago when there was a 9.1-month supply.  Unsold inventory has trended down from a record 4.04 million in July 2007; supplies reached a cyclical peak of 12.1 months in July 2010.

"The recovery is occurring despite excessively tight credit conditions and higher down payment requirements, which are negating the impact of record high affordability conditions," Yun said.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage declined to a record low 3.80 percent in May from 3.91 percent in April; the rate was 4.64 percent in May 2011; recordkeeping began in 1971.

The national median existing-home price for all housing types rose 7.9 percent to $182,600 in May from a year ago, the third consecutive month of year over year price gains.  The last time there were three back-to-back price increases from the same month a year earlier was from March to May of 2006.  "Some of the price gain results from a shrinking share distressed homes in the sales mix," Yun explained.

Distressed homes - foreclosures and short sales sold at deep discounts - accounted for 25 percent of May sales (15 percent were foreclosures and 10 percent were short sales), down from 28 percent in April and 31 percent in May 2011.  Foreclosures sold for an average discount of 19 percent below market value in May, while short sales were discounted 14 percent.

NAR President Moe Veissi, broker-owner of Veissi & Associates Inc., in Miami, offers advice to buyers in markets with limited supply.  "We are hearing a lot about multiple bidding and quick sales in areas with tight supply, with competition between first-time buyers and cash investors, who have a significant advantage," he said.

"It's extremely important to listen to the advice of your agent and perform all the due diligence that you would normally do in a more balanced market, such as making offers contingent upon a satisfactory home inspection," Veissi said.

First-time buyers accounted for 34 percent of purchasers in May, compared with 35 percent in April and 36 percent in May 2011.

All-cash sales slipped to 28 percent of transactions in May from 29 percent in April; they were 30 percent in May 2011.  Investors, who account for the bulk of cash sales, purchased 17 percent of homes in May, down from 20 percent in April and 19 percent in May 2011.  "These figures reflect a modest increase in traditional repeat home buyers in May," Yun said.

Single-family home sales slipped 1.0 percent to a seasonally adjusted annual rate of 4.05 million in May from 4.09 million in April, but are 10.4 percent above the 3.67 million-unit level in May 2011.  The median existing single-family home price was $182,900 in May, up 7.7 percent from a year ago.

Existing condominium and co-op sales fell 5.7 percent to a seasonally adjusted annual rate of 500,000 in May from 530,000 in April, but are 4.2 percent higher than the 480,000-unit pace one year ago.  The median existing condo price was $180,000 in May, which is 8.8 percent above May 2011.

Regionally, existing-home sales in the Northeast fell 4.8 percent to an annual level of 590,000 in May but are 7.3 percent higher than May 2011.  The median price in the Northeast was $250,700, up 3.8 percent from a year ago.

Existing-home sales in the Midwest rose 1.0 percent in May to a pace of 1.04 million and are 19.5 percent above a year ago.  The median price in the Midwest was $147,700, up 6.4 percent from May 2011.

In the South, existing-home sales slipped 0.6 percent to an annual level of 1.78 million in May but are 9.2 percent higher May 2011.  The median price in the South was $159,700, up 7.8 percent from a year ago.

Existing-home sales in the West declined 3.4 percent to an annual pace of 1.14 million in May but are 3.6 percent above a year ago.  The median price in the West was $233,900, up 13.4 percent from May 2011.  "The sharp price increase in the West results largely from more sales at the upper end of the market," Yun explained.