WASHINGTON -- U.S. sales of previously occupied homes surpassed the 5 million mark in May, the first time that's happened in 3½ years. The gain shows the housing recovery is strengthening. The National Association of Realtors said Thursday that home re-sales rose 4.2 percent in May to a seasonally adjusted annual rate of 5.18 million. That's up from April's pace of 4.97 million.
Sales last exceeded 5 million in November 2009. During that month and October 2009, a homebuying tax credit briefly inflated the sales pace. Prior to that, sales hadn't been above 5 million since July 2007. While the sales pace is still below the 5.5 million that is consistent with healthy markets, it has risen nearly 13 percent in the past 12 months.
And with a tight supply of homes on the market, the median sales price rose to $208,000 -- the highest since July 2008. "Housing is now the strongest part of the economy in growth terms," said Jim O'Sullivan, chief U.S. economist at High Frequency Economics.
The housing recovery is looking more sustainable and should continue to boost economic growth this year, offsetting some of the drag from higher taxes and federal spending cuts. Steady hiring and low mortgage rates have encouraged more people to buy homes. And with demand up, prices rising and few homes on the market, builders have grown more optimistic about their prospects, leading to more construction and jobs.
Sales of previously occupied homes rose last month in every region of the country. They increased 8 percent in the Midwest, 4 percent in the South, 2.5 percent in the West and 1.6 percent in the Northeast.The supply of homes for sales also grew, a sign that more homeowners are confident that they can lure buyers. The number of homes on the market rose 3.3 percent in May to 2.22 million. Still, inventories are 10 percent below year-ago levels.
Still, the report showed that a critical part of the market remains weak. First-time buyers represented only 28 percent of buyers in May. That's down from 34 percent a year ago and significantly below more normal levels above 40 percent. The decline in first-time buyers suggests many younger Americas are unable to get financing.
Banks have raised lending standards since the housing crisis, requiring higher credit scores, larger down payments and more detailed employment records. Distressed sales, which include foreclosures and short sales, accounted for 18 percent of May sales, unchanged from April. Both months matched the lowest share of distressed sales since the Realtors began tracking this data in October 2008. Distressed sales stood at 25 percent of sales in May 2012.
On Wednesday, Federal Reserve Chairman Ben Bernanke cited the housing gains as a major reason the Fed's economic outlook has brightened. Still, mortgage rates have jumped in recent weeks. And they are expected to rise further now that the Fed has signaled it plans to scale back its bond purchases this year if the economy continues to strengthen. Higher mortgage rates could slow some of the housing market's momentum.
A better outlook for housing has made builders more optimistic. The National Association of Home Builders/Wells Fargo builder sentiment index rose in June to 52, up from 44 in May. It was the highest reading in more than seven years and the largest monthly increase in more than a decade. A reading above 50 indicates more builders view sales conditions as good rather than poor.
More about home sales:
Homes Selling as Fast as They Did During Housing Boom
Spring Homebuying 'Stuck' Under Tight Inventory, NAR Says
Pending Home Sales at Highest in 3 Years
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