Prices have risen at a double-digit rate over the past six months — an unsustainable rate, said Lawrence Yun, the association’s chief economist. “This cannot continue,” particularly while personal income grows at a much slower rate, he said.
May’s results beat analysts’ expectations. Existing-home sales, which include single-family homes, townhomes, condominiums and co-ops, rose at a seasonally adjusted rate of 4.2 percent, to 5.18 million, in May. It is the 23rd consecutive month that sales have stayed above year-ago levels.
Sales grew the fastest in the Midwest and were up 16.3 percent compared with last year.
“We are seeing a constant improvement of the housing market, both nationally and locally,” said Alexander Paul, executive vice president of Delta Associates, an Alexandria research firm. In the Washington area, he said that sales increased 7.8 percent and that the average price of homes sold rose 9.2 percent in the 12 months that ended in March.
Nationally, only 18 percent of sales were of distressed properties, according to the National Association of Realtors, another sign that the market is healing. Eleven percent of May sales were foreclosures, which sold for an average discount of 15 percent below market value.
The price increases have partly been driven by stiff competition for a small inventory of homes on the market. The housing inventory at the end of May rose 3.3 percent, but at the current pace, it would take an average of 5.1 months to sell all of the homes on the market, lower than the six months that economists consider a healthy market.
“Inventories have become a key item in this release because they are driving prices up,” Patrick Newport, an IHS Global Insight economist, said in a research note.
The only way to moderate price increases is through more home-building, Yun said, adding that this will determine how strongly prices will rise next year. New-home construction must increase by 50 percent, or 500,000 units per year, to ease the lack of housing inventory, he said.
“We will continue to have some degree of shortage in the market, as supply of new homes trails behind demand,” Yun said.
Some economists have begun to fear that rising mortgage rates, which now hover near 4 percent, could sap some buyer enthusiasm. Rates have been driven up by anticipation that the Federal Reserve could soon begin scaling back its generous bond-buying program.
But rates “are still very attractive,” Yun said, and there is pent-up demand.