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  Existing Home Sales Declined 0.9% in May
Posted Under: Data Watch • Home Sales • Housing • Inflation • COVID-19

 
Implications: Existing home sales fell for a fourth consecutive month in May, as low inventories and elevated prices continued to weigh on closings.  Notably, even with recent declines existing home sales are up 1.8% from the February 2020 pre-pandemic high.  There are reasons to believe the worst of the inventory crunch may be behind us.  New home construction remains strong, and now that the pandemic seems to be ending and vaccines are widely available, it's likely that more sellers will feel comfortable listing their homes.  In fact, inventories jumped 7.0% in May, the third consecutive month of gains.  While inventories are still down 20.6% from a year ago (the most accurate measure for inventories given the seasonality of the data) that rate of decline is slowing. The months' supply (how long it would take to sell today's inventory at the current sales pace) of existing homes for sale rose to 2.5 in May from April's reading of 2.4, though these readings still remain near record lows.  Despite the shortage of listings, it looks like there is still significant pent-up demand from the pandemic, with buyer urgency so strong in May that 89% of the existing homes sold were on the market for less than a month. The combination of strong demand and sparse supply has pushed median prices up 23.6% in the past year, the fastest rate on record going back to 2000.  However, despite these issues we expect sales in 2021 to ultimately post the best year since 2006.  Why?  First, more construction and listings as the pandemic ends should help alleviate the worst of the supply crunch and help keep a lid on price growth.  Moreover, a trend toward work-from-home is likely to remain in place even as pandemic-related measures are eased around the country.  That means people who were previously tied to specific locations, typically in urban areas, will have more flexibility, making more space in the suburbs an attractive proposition.  Finally, there are significant demographic tailwinds coming together for home sales for the foreseeable future.  Census Bureau population projections show that the key homebuying population of those 30-49 years old is set to grow significantly through 2039.  In other news today on the manufacturing front, the Richmond Fed Manufacturing Index, which measures mid-Atlantic manufacturing sentiment, rose to a very strong reading of 22 in June from 18 in May.

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