Sales of existing homes picked up the pace again in May, according to a report released by the National Association of Realtors (NAR). May's increase - spurred by more affordable home prices, historically low interest rates, and the $8000 first-time homebuyer tax credit - was the first back-to-back monthly increase since September 2005.

Sales of single-family homes rose 1.9% to a seasonally adjusted annual rate of 4.25 million in May from a pace of 4.17 million in April. This is 3% lower than the 4.38 million-unit level in May 2008. The median price for an existing single-family home was $172,900 in May, down 16.1% compared to May 2008.

Existing condominium and co-op sales increased 6.1% to a seasonally adjusted annual rate of 520,000 units in May from 490,000 in April, but are 8.9% below the 571,000-unit level from a year ago. The median existing condo price was $173,800 in May, down 21.9% from a year earlier.

Existing home sales - including single family residences, townhomes, condominiums and co-ops - rose 2.4% to a seasonally-adjusted annual rate of 4.77 million units in May from a downwardly revised level of 4.66 million units in April. The rate remains 3.6% lower than the pace of 4.95 million units from a year ago.
The supply of houses on the market are also on the decline. The total housing inventory at the end of May was 3.8 million existing homes - down 3.5% from April. This represents a 9.6-month supply of homes at the current sales pace, compared to a 10.1-month supply of homes in April.

Lawrence Yun, NAR's chief economist, expected an improvement. “Historically low mortgage interest rates clearly drew buyers into the market, and housing remains very affordable even with a recent uptick in rates,” he said. “First-time buyers also are being drawn off the sidelines by the $8,000 tax credit, which is helping to absorb inventory. However, the increase in sales is less than expected because poor appraisals are stalling transactions. Pending home sales indicated much stronger activity, but some contracts are falling through from faulty valuations that keep buyers from getting a loan.”

Yun said the appraisal problem is serious. “Lenders are using appraisers who may not be familiar with a neighborhood, or who compare traditional homes with distressed and discounted sales,” he said. “In the past month, stories of appraisal problems have been snowballing from across the country with many contracts falling through at the last moment. There is danger of a delayed housing market recovery and a further rise in foreclosures if the appraisal problems are not quickly corrected.”

NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, said appraisals and the tax credit are key issues. “To maximize the potential for a housing recovery and subsequent economic recovery, we need realistic appraisals that are based on proper comparisons and done by a local specialist,” he said. “In addition, the first-time buyer tax credit should be expanded to all buyers of primary homes regardless of income. Extending the credit into 2010 would allow more time for the market to catch up with underlying demand, in part because many families with children, who normally time their purchase based on school year considerations, do not have enough time to move before the start of school in late August.

“Freeing a pent-up demand in housing will absorb inventory at a faster pace, strengthen communities and stabilize home prices earlier,” McMillan said.

First-time buyers accounted for 29% of transactions in May, and the number of buyers looking at homes is almost 10 percentage points higher than it was a year ago, according to a survey by NAR. “This is the time of year when we see large increases in the number of repeat buyers, who are benefiting from sales to entry-level buyers,” Yun said. “Investors appear less active, but are more prevalent in areas with large price corrections.”

In May, the national median existing-home price for all housing types was $173,000, down 16.8% from a year earlier. But this doesn't mean that homeowners have necessarily lost such a large amount of value from their homes - the national median sales price is being distorted by a relatively high percentage of distress sales. Distressed properties accounted for a third of all sales in May, but is down from nearly half of sales in April.

“The decline in the distressed sales share likely results from an increase of repeat buyers in May,” Yun said. “First-time buyers are concentrated in the lower price ranges, which include most of the distressed sales.”

Freddie Mac reported that the national average commitment rate for a 30-year conventional fixed-rate mortgage was 4.86% in May, up slightly from 4.81% in April. Last week's rate for a 30-year fixed was reported to be 5.38%, and the rate for the same mortgage loan in May 2008 was 6.04%.

By region, existing-home sales in the Northeast rose 3.9% to an annual level of 800,000 in May, but remains 10.1% below a year ago. The median home price in the Northeast was $243,600 - down 12.5% from a year ago.

The Midwest had a 9% increase in May to a pace of 1.09 million existing-home sales per year but was still 4.4% lower than a year ago. The median sales price in the Midwest was $145,800 - 10.4% lower than May 2008.

In the South, the pace of existing-home sales in May stayed level at an annual pace of 1.74 million and remains 8.9% lower than the pace from May 2008. The median price in the South was $157,400, which is 9.9% lower than it was a year ago.

The rate of existing-home sales in the West dipped .9% to an annual pace of 1.14 million in May, but is 11.8% higher than it was a year ago. The median home price in the West was $197,700 - down by 30.6% from May 2008.


Source:
National Association of Realtors