Existing Home Sales Up 4.9% in May

By Dow Jones Business News, 

WASHINGTON--Sales of previously owned homes rose in May, a sign the housing market strengthened during the important spring buying season.

Existing home sales increased 4.9% in May to a seasonally adjusted annual rate of 4.89 million, the National Association of Realtors said Monday. Economists surveyed by The Wall Street Journal had forecast a rate of 4.75 million for the month.

April sales figures were revised up to a rate of 4.66 million, a 1.5% increase from the prior month. Sales have now risen for two consecutive months this spring after declining in each of the first three months of the year.

Still, May sales were down 5% from the year-earlier level.

The pace of home sales began to ease in the middle of last year, after mortgage interest rates rose sharply. Then an unusually cold winter in much of the country further chilled demand. The Realtors group said would-be buyers also struggled with rising home prices and a limited inventory. Those trends are starting to reverse with price gains slowing as more home come on to the market.

Interest rates have also moderated recently, touching a six-month low in May and hovering near that mark since. The average interest rate on a 30-year fixed-rate mortgage stood at 4.17% last week, according to Freddie Mac.

Lower mortgage rates make home purchases more affordable for borrowers. However, Realtors economist Lawrence Yun said he expects rates to start moving back up, reaching 5% by the first quarter of 2015.

Rates have edged lower this year even as the Federal Reserve scaled back its bond-buying program designed to push down long-term interest rates. After the program ends, which is expected later this year, the Fed will still hold more than $ 1.6 trillion in mortgage-backed securities. "These sizable and still-increasing holdings will continue to put downward pressure on longer-term interest rates (and) support mortgage markets," Fed Chairwoman Janet Yellen said last week.

Monday's report showed the median sale price for a home in May was up 5.1% from a year earlier to $213,400. That was the slowest annual gain since March 2012.

The inventory of homes available for sale rose 6% from a year earlier. At the current pace, it would take 5.6 months to exhaust the supply. Mr. Yun said that level implies near "balanced conditions' but noted homes are moving quickly.

"The sales decline witnessed from July of last year is effectively over," he said. "Given job creation conditions, it's hard to see how sales could slide back" in the coming months.

Because of the sluggishness of the first half, Mr. Yun said he expects about a 3% reduction in total sales this year compared to 2013.

Write to Eric Morath at eric.morath@wsj.com and Josh Mitchell at joshua.mitchell@wsj.com.

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