First-Time Buyers Boost Existing Home Sales

Why an increase in existing homes sales is a good thing for the real estate market.

Existing home sales ticked up in May, according to the National Association of Realtors on Monday. On the whole, that’s a good thing for other kinds of real estate, though mostly indirectly. Stronger existing home sales don’t stimulate the economy in quite the way that new home sales do (which be reported Tuesday), since there’s a lot more economic activity associated with building a new house that selling an existing one. Still, existing-home sales point to a willingness among would-be buyers to actually pull the trigger and buy a house, which is a measure of their prosperity, and adds stability to neighborhoods. The more of that kind of activity, the better, unless it’s a bubble symptom. There’s also some direct impact on the economy—and retailers in particular benefit—as new homeowners buy things to put in their houses. That never really stops.

Total existing-home sales rose 5.1 percent to an annualized rate of 5.35 million units in May, up from a revised 5.09 million in April, according to the Realtors. Sales have now increased year-over-year for eight consecutive months and are 9.2 percent above a year ago (4.9 million units). The May rate was the highest in nearly six years, going all the way back to November 2009, when housing sales were on the way down, as part of the massive loss in confidence in the economy at that time. The organization also said that total housing inventory at the end of May increased 3.2 percent to 2.29 million existing homes available for sale, which is 1.8 percent higher than a year ago. Even so, unsold inventory is fairly tight, at a 5.1-month supply at the current sales pace, down from 5.2 months in April.

NAR attributed some of the growth in sales to more first-time buyers jumping into the game. The share of first-time buyers rose to 32 percent in May, up from 30 percent in April and matching the highest share since September 2012. A year ago, first-time buyers represented 27 percent of all buyers. First-timers help keep the overall housing market healthy, since their activity allows existing homeowners to trade up, some of whom will buy new houses. The organization also reported that the median existing-home price for all housing types in May was $228,700, which is 7.9 percent above May 2014, but still quite a bit off the bubble peak of nine years ago, especially in real terms.

Separately, is predicting that existing-home sales in June will rise sharply over last year’s total. The company’s June Real Estate Nowcast, which is it says is based on industry data, proprietary transactional data and Google search activity, aims to predict market trends ahead of official numbers. The company said that next month will see an annualized rate between 5.4 million and 5.74 million units,. At 5.57 million, that would be up 4.1 percent for the month and an 11.2 percent for the year. posited that an increase in ordinary buyers will make up for fewer investors in the market for single-family houses, and that prices will continue to edge up.