Checking In on the Housing Market

Data released today by the National Association of Realtors showed that the median sales price of an existing home in the U.S. rose nearly 24% year over year in May, to a record $350,300. That's the fastest growth rate in more than two decades.

The culprit is low supply and high demand. The number of homes sold in May fell from April, the fourth month in a row of declines. And the inventory of homes listed for sale is about half of what it was this time last year.

Here's Barron's Shaina Mishkin writing today:

At the current sales pace, it would take 2.5 months to sell through available inventory—a slight increase from 2.4 months in April, but significantly lower than the 4.6 months of supply at this time last year.

Such an increase has not slowed fast price appreciation. [Lawrence Yun, the National Association of Realtors’ chief economist,] said he expects supply to increase, helping to slow home price appreciation.

Yun addressed the notion of whether the housing market is in a bubble, which he noted is a popular Google search query. 'Given the inventory shortage, I would say probably not.'

In the event of price declines, Yun said they are unlikely to last. 'If the prices were to decline, there is an army of potential homebuyers viewing it as a second chance opportunity,' he said.

Earlier this month, the National Association of Realtors published a report by the Rosen Consulting Group, that estimated between 5.5 million and 6.8 million new homes are needed to meet demand. 

The next batch of housing market-related data lands tomorrow, when the Census Bureau releases its new residential sales report for May. That will be an indicator of new home construction.

Economists' consensus forecast is for a seasonally adjusted annual rate of 867,500 new-home sales, up slightly from April. That would be the biggest May for sales of newly built homes since 2006. The problem is that it will take a lot more months like that to even make a dent in the nationwide shortfall of new homes.

And with construction-related shortages from labor to lumber, it's not as easy as just flipping a switch.

Read the rest of Shaina's report on the current state of the U.S. housing market.

And also check out Andrew Bary's latest stock pick in this past weekend's issue of Barron's. He sees value in Lennar, one of the country’s top home builders.