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Sales of U.S. existing homes fall 1.5% in May

WASHINGTON (MarketWatch) -- Sales of existing homes fell 1.5% in May as fewer cheap homes were sold, a trade group said Thursday.

The National Association of Realtors said sales for the month yielded a seasonally adjusted annual rate of 4.55 million, down from an unrevised pace of 4.62 million in April. Economists polled by MarketWatch anticipated a 4.6 million annual rate in May.

Compared to May 2011, sales were up 9.6%, the 11th straight month of year-on-year gains.

Mortgage rates, which Freddie Mac separately reported reaching a record low, have helped contribute to those gains. The Federal Reserve on Wednesday said it's planning to keep ultra-low interest rates at least through the end of 2014.See story on the Fed.

Still, sales are still running well below the peak of around 7 million before the housing bubble burst.

Though the U.S. economy hit a little soft spot, the May pullback largely reflected an inventory shortage in lower-priced homes, according to Lawrence Yun, chief economist of the NAR.

"There's plenty of buyer activity going on," Yun said.

One piece of evidence he gave for the lack of low-priced homes on the market was that median prices gained 7.9% to $182,600 on a year-on-year basis. It was the highest since June 2010, when the first-time homebuyer tax credit was about to expire.

That big gain is due to a shift in the types of homes being sold, rather than re-sale price gains, he said.

April's price gain was revised to 7.8% rather than 10.1%. A separate gauge released Thursday by the Federal Housing Finance Agency said prices on a seasonally adjusted basis rose 3% compared to a year ago in April.

The NAR's data also showed inventories declined 0.4% to 2.49 million, or roughly a 20% decline from May 2011. At the current sales pace, there are 6.6 months of supply. Historically, six months of inventory are considered normal -- which hasn't been the case since 2006, before the housing bubble burst.

However, Yun pointed out that in so-called judicial foreclosure states, like New York, New Jersey and Connecticut, shadow inventories haven't moved much. Shadow inventories represent homes near or in foreclosure that haven't yet hit the market. That overhang could impede a recovery there, Yun said.

In those states, judges rather than trustees determines whether a property can be foreclosed.

Yelena Shulyatyeva, an economist of BNP Paribas, said she expects home sales activity to be steady in the near term.

"Mortgage applications to purchase have been relatively flat since March pointing to a flat trajectory in home sales going forward as lenders work through the previously submitted applications," she said in a note to clients. "Credit conditions remain tight, particularly for mortgages, and the traditional channels of monetary policy have been clogged as many potential homebuyers are still unable to take advantage of the historically low mortgage rates."

Fewer all-cash sales

Distressed sales, representing both foreclosures and short sales, accounted for 25% of all transactions, the lowest figure since the NAR started tracking the data in 2008 and down from 28% in April.

All-cash transactions accounted for 28% of all transactions vs. 29% in April. Investors made up 17% of all transactions, down from 20% in April.

First-time buyers aren't stepping in, however -- representing 34% of all transactions, down from 35% in April and off normal levels of around 40%.

Yun said repeat buyers are behind the transactions. He pointed out that 80% of all homeowners have some equity.

Other data released Thursday weren't as positive.

First-time jobless claims barely budged in the latest week, while a Philadelphia-area manufacturing survey plunged deeper into negative territory in June. Read more on Philly Fed survey.