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The number of new U.S. home sales unexpectedly increased in May despite the housing market being buffeted by rising mortgage rates and the Federal Reserve’s recent hawkishness on interest rates.
Data released Monday by the National Association of Realtors (NAR) found that home sales rose slightly in May, up 0.7% compared with April when they fell by 2.4%. This ended a six-month streak of declining sales as buyers pulled back from the market, according to an NAR press release.
Earlier in June, the Commerce Department reported that the number of housing completions was 9.1% above April’s estimates with 1,465,000 units of housing available. According to the NAR, its Pending Home Sales Index jumped 15.4% in the Northeast and 0.2% in the South but declined in both the Midwest and West.
Lawrence Yun, NAR’s Chief Economist, noted that the results were evidence that the housing market remained in transition as it adjusts to a tighter monetary environment. Here, Yun warned that the hikes to interest rates initiated by the Federal Reserve have been damaging to demand but the slowdown carries wider risks to the economy.
“Trying to balance the housing market by choking off demand via higher mortgage rates is damaging to consumers and the economy. The better way to balance the market is through increased supply, which also helps the broader economy,” Yun said in a statement.
Since the last inflation readings, the Federal Reserve has moved ahead with a third round of interest rate hikes on June 15. The Fed increased rates by 0.75% in the highest single rate hike since 1994.
After announcing the latest rate hike, Fed Chairman Jerome Powell acknowledged that the housing market was softening in response to the higher mortgage rates that came with the Fed’s choices. But Powell conceded that he did not yet know what the total impact rising interest rates would have on housing prices or residential investment in the market, but he described it as still remaining “very tight.”
“We need to get back to a place where supply and demand are back together, and where inflation is down low again and mortgage rates are low again,” Powell told reporters.
The average 30-year fixed mortgage stands at 5.89%, according to Bankrate.com.
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