More first-time homebuyers took the plunge in May, helping catapult U.S. sales of previously owned properties to their highest level since 2009.
Closings on existing houses, which usually occur a month or two after a contract is signed, rose 5.1 percent to a 5.35 million annualized rate, the National Association of Realtors said Monday. First-time buyers accounted for 32 percent of purchases during the month, matching the highest share since September 2012.
Lower down-payment requirements from government-sponsored enterprises, rising rents and a brighter employment picture are persuading more Americans to become homeowners. The prospect of higher borrowing costs as the Federal Reserve considers raising rates may also be spurring fence-sitters to move forward, an additional boost to a housing market that’s been short on momentum.
“Incomes are doing better and more people are working,” said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC in Stamford, Connecticut, who correctly forecast May sales. “I would imagine we’ll continue to see better demand from first-time buyers.”
Excluding November 2009, when demand was bolstered by the expiration of a federal government first-time homebuyer tax credit, sales last month were the strongest in more than eight years. Demand accelerated in all four major U.S. regions in May and median prices rose at a slower pace.
Stocks advanced on merger news and optimism over Greece debt talks. The Standard & Poor’s 500 Index rose 0.6 percent to 2,122.85 at the close in New York. The S&P Supercomposite Homebuilding Index increased 1 percent.
Purchases of previously owned homes, which account for about 90 percent of the market, were projected to climb to a 5.26 million rate in May, according to a Bloomberg survey of 71 economists. April’s pace was revised to 5.09 million from an originally reported 5.04 million.
Relaxed credit terms from government-sponsored enterprises are helping put more Americans in homes for the first time. At the end of last year, Fannie Mae allowed lower down payments for those buyers, while in March, Freddie Mac started giving similar breaks.
Easier credit is helping soothe the sting of rising property values. The NAR said the median price of an existing home rose 7.9 percent from May 2014 to $228,700.
Prices have been bolstered by lean housing inventory. While the number of previously owned homes for sale rose 1.8 percent in May to 2.3 million, at the current sales pace, it would take 5.1 months to sell those houses. That’s down from 5.2 months at the end of April.
“With inventories still tight, prices are moving up,” Lawrence Yun, NAR chief economist, said at a press conference as the figures were released. “We need more supply,” particularly of new homes, he said.
By region, purchases in the Midwest climbed to the highest level since November 2009. Sales in the South were the second-strongest since March 2007, according to the Realtors group.
Purchases of existing single-family homes outpaced demand for condominiums, rising 5.6 percent to an annual rate of 4.73 million.
“Certainly an improving economy is helping,” Yun said. Realtor confidence and buyer traffic are “solidly up.”
Before May, the housing industry had shown gradual gains in the second quarter after the world’s largest economy slumped in the first three months of the year.
While housing starts declined 11.1 percent in May to a 1.04 million annualized rate, that followed a revised 1.17 million pace in April to cap the best back-to-back readings since late 2007, Commerce Department figures showed last week. Permits for future projects rose to the highest level in almost eight years.
Homebuilders are feeling better about the outlook. The National Association of Home Builders/Wells Fargo builder sentiment gauge advanced in June to the highest level since September.
Relatively low borrowing costs are still supporting would-be buyers who can qualify for credit. The average rate for a 30-year fixed mortgage reached 4.04 percent in the week ended June 11, according to data from McLean, Virginia-based Freddie Mac. While that was the highest rate this year, it’s below the average 4.17 percent for all of 2014.
“Housing overall, given the still-low level of mortgage rates, remains quite affordable,” Fed Chair Janet Yellen said in a June 17 press conference after the policy makers’ two-day meeting in Washington.
The central bankers decided at their June meeting to keep the benchmark interest rate near zero, where it’s been since 2008. Most economists surveyed by Bloomberg project the Fed will announce its first rate increase in nine years in September.