In June, Americans bought homes at the fastest rate recorded in more than eight years. That has pushed prices to record highs as buyer demand eclipses the availability of houses on the market.
The National Association of Realtors says existing homes climbed 3.2% last month, to a seasonally adjusted annual rate of 5.49 million, the highest rate since February 2007. Sales have jumped 9.6% over the past 12 months, while the number of listings has risen just 0.4%.
And, median home prices climbed 6.5% over the past 12 months to $236,400, the highest level reported by the Realtors not adjusted for inflation.
CIBC World Market economist Andrew Grantham says, “A continued upturn in pending home sales recently, and slightly higher supply than earlier in the year, suggests sales could rise further in the near term.”
However, home buying has surged this time around because of a rise in the number of new buyers flooding into the real estate market—robust hiring over the past 21 months and an economic recovery that’s now in its sixth year have enabled more Americans to set aside money for down payments.
Grantham says, “In contrast to the upturn in sales seen in 2013, the increase seen recently is being driven more by first-time buyers. The proportion of sales made to [these] buyers [in June] was 30%, up from 28% a year ago, while sales to investors now account for 12%, down from 16% a year ago.”
But, rising demand has failed to draw more sellers into the market. So that’s caused tight inventories and escalating prices that could cap sales growth. In fact, a mere five-months-worth supply of homes was on the market in June, compared to the average of six months in a healthy market.
And some markets are barely adding any listings; the condo market in Massachusetts contains just 1.8-months-worth supply, according to a Federal Reserve report. Plus, the majority of real estate agents in the Atlanta Fed region (which ranges from Alabama to Florida) say inventories have been flat or falling over the past year.
Limited supplies could prove a drag on sales growth in the coming months, tempering further gains. However, ever-rising home values are stretching the budgets of first-time buyers and owners looking to upgrade. As a result, current demand could taper off.
Home prices have increased nearly four times faster than wages, as average hourly earnings have risen just 2% over the past 12 months to $24.95 an hour, according to the U.S. Labor Department.
For the time being, says Grantham, this housing data reflects “positive news for the U.S. outlook,” but doesn’t expect it’ll “cause much in way of market reaction today.”