US existing home sales unexpectedly drop in May

US existing home sales unexpectedly fell in May amid a lack of inventory and high prices, according to data from the National Association of Realtors.

Sales were down 0.4% to a seasonally-adjusted annual rate of 5.43m from a downwardly-revised 5.45m the month before. Economists had been expecting an increase to 5.52m. With April’s drop, were 3% lower than a year ago and have declined for three months in a row.

Meanwhile, the median price for an existing home was $264,800, up 4.9% from May last year and marking an all-time high.

Total housing inventory rose 2.8% last month to 1.85m existing homes for sale but was still 6.1% lower than a year ago.

Lawrence Yun, NAR chief economist, said a solid economy and job market should be generating a much stronger sales pace than what has been seen so far this year.

"Closings were down in a majority of the country last month and declined on an annual basis in each major region. Incredibly low supply continues to be the primary impediment to more sales, but there’s no question the combination of higher prices and mortgage rates are pinching the budgets of prospective buyers, and ultimately keeping some from reaching the market."

Existing home sales in the Northeast were up 4.6% to an annual rate of 680,000, while sales in the Midwest fell 2.3% to an annual rate of 1.26m in May.

In the South, sales inched down 0.4% to 2.32m, while sales in the West slipped 0.8% to 1.17m last month.

Pantheon Macroeconomics said: "The consensus was bafflingly strong given the weak pending home sales report for April, which pointed to soft May sales. In the event it was a bit too gloomy, but the bottom line here is that single-family sales have dipped to a four-month low, and the trend has been flat, net, since the middle of last year, though the hurricanes and bouts of severe winter weather have made the monthly data very noisy.

"Looking ahead, the mortgage applications numbers suggests sales will be flat, at best, over the summer, but with inventory still falling on a y/y basis, prices will continue to rise. The trend for single-family homes is running at about 5-1/2% y/y, so implied real mortgage rates remain below zero even before accounting for the tax advantages of home purchase."