There are two sides of the housing coin, and they’re responding differently in spite of the downward trend of interest rates.
Existing home sales are up, thought to be the result of lower-than expected mortgage rates. The most recent figures from the National Association of Realtors show that existing home sales increased 2.5% to a seasonally adjusted annual rate of 5.34 million units in May. April home sales had been slightly revised to reflect a higher-than-recorded rate of 5.21 million.
Rates have dropped since the Fed suspended its three-year monetary policy tightening campaign. The 30-year fixed mortgage rate has dropped to an average of 3.84%, from a more than seven-year peak around 4.94% last November, according to data from Freddie Mac. Nearly half of the central bank’s policymakers expect further rate cuts during the remainder of 2019, due to concerns over trade and the overall economic outlook.
Meanwhile, sales of new U.S. single family homes fell for a second straight month in spite of the decreasing interest rates. New home sales dropped 7.8% to a seasonally-adjusted rate of 626,000 units in May, the lowest level since December. April’s new home sales had been slightly revised to reflect a higher-than-recorded pace of 679,000 units.
New home sales are based on permits and tend to be more volatile on a month-to-month basis. In the South, where the majority of new home transactions take place, sales rose 4.9% in May to the highest level since July 2007. Sales in the Midwest also rose, by 6.3%. In the West, however, sales dropped 35.9%, and in the Northeast, sales were down 17.6%.
In May, there were 333,000 new homes for sale, just barely more than in April. Given the pace recorded last month, it would take 6.4 months to clear that inventory, which is up from 5.9 months in April.
About two-thirds of the houses sold last month were either under construction or still in pre-construction.
From a year-over-year perspective, existing home sales dropped 1.1% from one year ago, which was the 15th consecutive year-on-year decrease in home sales. Year-over-year new home sales have fallen 3.7%. Median home sales have also declined 2.7% from a year ago, to $308,000 in May.
The recent housing market has been nothing short of a roller coaster of expectations and results. Even though increased existing home sales are a positive sign of the overall economy, experts aren’t exactly confident, especially as the market has been a drag on economic growth for five consecutive quarters. Builders in particular have experienced a drop in sentiment in June, citing continued labor shortages.
The NAR said the new tax code that came into effect last year, which reduced the amount of mortgage-interest payments that homeowners could deduct, was hurting sales of homes that cost more than $1 million.
Existing home sales make up about 90% of total home sales in the United States.