A number of studies point to growing weakness in America’s housing market. Existing home sales grew just 1.8% in May, shy of analyst estimates. Just 5.53 million existing homes were sold in May, up slightly from April but below consensus estimates of 5.57 million units. On a year-over-year basis, existing home sales rose 4.5%.
The National Association of Realtors (NAR) study saw home sales still bolstered by cheap financing, as low mortgage rates incentivized more home buying activity. "This spring's sustained period of ultra-low mortgage rates has certainly been a worthy incentive to buy a home, but the primary driver in the increase in sales is more homeowners realizing the equity they've accumulated in recent years and finally deciding to trade-up or downsize,” said NAR Chief Economist Lawrence Yun.
The rate of sales is likely to persist through the end of the season, said Yun. "Barring further deceleration in job growth that could ultimately temper demand from these repeat buyers, sales have the potential to mostly maintain their current pace through the summer."
Yun also noted, however, that the market is challenging for lower-income homeowners, causing pressure on first-time homebuyers. "With first-time buyers still struggling to enter the market, repeat buyers using the proceeds from the sale of their previous home as their down payment are making up the bulk of home purchases right now,” he said.
Part of the pressure on homebuyers is a lack of inventory growth, which Yun said is being helped somewhat by new developments, but supply growth still fails to strengthen enough to satiate demand.
"While new home construction has thankfully crept higher so far this year, there's still a glaring need for even more, to help alleviate the supply pressures that are severely limiting choices and pushing prices out of reach for plenty of prospective first-time buyers,” he said. "Existing inventory remains subdued throughout much of the country and continues to lag even last year's deficient amount,” he added.
Home price growth moderated slightly in April, according to the Federal Housing Finance Agency. A new study by the FHFA saw a 0.2% increase to home prices versus 0.7% in March. That still represents a 5.9% year-over-year growth in home prices, while incomes have grown just 2.1% over the same period on a year-over-year basis and CPI growth has decelerated.
At its current rate, home price growth is more than double the rate of baseline inflation.
Home price growth has been offset by a fall in mortgage rates. A new study by the Mortgage Bankers Association saw 30-year mortgage rates falling to 3.76% from 3.83% a year ago, while Freddie Mac saw 30-year rates fall to 3.6% in May, down from the 3.85% average rate for 2015.