Existing home sales rise slightly in may improved supply a boon for buyers

Summary

High rates still a constraint, though more supply now supporting sales

Existing home sales rose 0.8% during May. Greater resale supply and a modest reprieve in mortgage rates likely helped to support transactions. However, persistent affordability challenges continue to keep resales running at a slow pace. The 4.03 million-unit pace registered in May was roughly on par with the pandemic low hit in 2020 and not far above last year's low point of 3.9 million. For more on our latest views on the residential sector, please see the Housing Wrap Up.

Resales best expectations in May

Existing home sales rose 0.8% in May to an annual rate of 4.03 million. Although this outcome outshined expectations for a decline, persistent affordability challenges have kept the pace of resales below the pandemic trough of 4.09 million registered in May 2020 and on par with the low point of 3.9 million hit last year.

Resales are weakening on trend through the monthly volatility. Existing home sales in May were 2.2% below May 2024 on a not-seasonally-adjusted basis.

A 1.1% upturn in single-family transactions drove the increase in overall sales in May. Condo and co-op sales dipped 2.7%.

May's improvement in sales was likely spurred by a modest reprieve in mortgage rates, which averaged 6.7% in March and April according to Freddie Mac. While reductions in the federal funds rate should allow for additional mortgage rate relief later this year, we currently do not anticipate mortgage rates to recede below 6.5%.

Growing resale supply is another support factor. Single-family inventories reached 1.34 million in May, a 19.6% increase over May 2024. Although inventories are still low compared to pre-pandemic levels, they are now at their highest point since June 2020.

Expanding inventories are putting downward pressure on home price appreciation. The median single-family sales price increased just 1.3% over the past 12 months, a notable downshift from the 5.2% appreciation rate in May 2024. Separately reported data from Cotality suggest that single-family valuations are declining over the year in D.C., Hawaii, Texas and Florida.

An uptick in mortgage applications foreshadows a modest improvement in home sales this year. The average number of purchase applications so far in June is 4.7% greater than May's average and 17.3% above the average level in February. That said, applications remain suppressed relative to pre-pandemic levels.