WASHINGTON—Sales of previously owned homes rose in May, a sign that falling mortgage rates could be nudging the housing market toward a modest spring performance after a sluggish start to this prime selling season.
Sales rose 2.5% in May from the prior month to a seasonally adjusted annual rate of 5.34 million, the National Association of Realtors said Friday.
The spring is crucial to the housing market because roughly 40% of the year’s sales take place in March through June. May was the first month this spring when sales rose from the prior month, but compared with a year earlier sales in May still declined 1.1%
The housing market struggled late last year even as the rest of the economy boomed, in part because higher mortgage rates priced some buyers out of the market.
Now, analysts said the housing market may be benefiting from growing economic uncertainty.
“We are really seeing some headwinds in the broader economy right now, with the trade war and in the technology sector and also in manufacturing and agriculture,” said Tian Liu, chief economist at Genworth Mortgage Insurance. “The housing market is actually less exposed to those headwinds right now.”
Mortgage rates are now below 4% for the first time since January of last year, according to Freddie Mac. That is down from nearly 5% in the fall, a saving of roughly $200 a month for the typical home buyer.
The Federal Reserve indicated Wednesday that it could cut interest rates in the months ahead if an economic outlook clouded by uncertainty over trade policy doesn’t improve, raising the prospect that mortgage rates may drift even lower.
Ashley Lauren Farnschlader, a Realtor in Philadelphia, said she had one client reach out to her because she had read that mortgage rates were low and had decided to start looking for a home again. Still, Ms. Farnschlader added, “I don’t think it’s been the big push that everybody wants it to be.”
Indeed, economists say the housing market’s performance is surprisingly tepid given the sharp fall in mortgage rates. Some analysts said that suggests the market is moderating after years of rapid price growth and sales will struggle to reach previous highs of the current housing cycle in 2017.
“Certainly with existing sales, I think we’ve seen the peak,” said David Berson, chief economist at Nationwide Insurance.
He added he expects most metropolitan areas to continue to see modest price and sales growth but that some, such as San Jose, Calif., are more vulnerable to a downturn because prices have risen so steeply.
Existing home sales have now fallen on an annual basis for 15 straight months. New home sales have grown strongly in recent months, but the construction sector has struggled. Housing starts fell 0.9% in May from the prior month to a seasonally adjusted annual rate of 1.269 million, the Commerce Department said Tuesday. U.S. home-builder confidence also dropped in June, as builders reported concerns over rising construction costs and trade issues.
Prices are continuing to rise faster than incomes, which may be offsetting some of the additional buying power that consumers are getting from lower rates. The national median sale price for a previously owned home last month was $277,700, up 4.8% from a year earlier and the strongest monthly pace of growth since August 2018, the National Association of Realtors said Friday. It marked the 87th straight month of year-over-year gains.
News Corp., owner of The Wall Street Journal, also operates Realtor.com under license from the National Association of Realtors.
Inventory of homes for sale is continuing to increase. The NAR said there were 1.92 million existing homes available for sale at the end of May, up 2.7% from a year earlier and a 4.3-month supply at the current sales pace.
The market has been starved for inventory for years, but in this case economists said inventory levels are increasing primarily because homes are taking longer to sell so the growing choices aren’t necessarily appealing ones.
The city of Boston has seen roughly a 30% increase in inventory compared with the same time last year, according to Larry Rideout, chairman of Boston-based Gibson Sotheby’s International Realty.
“Everything is always behind the curve,” he said. “Everyone has decided it’s the chance to [put their home on the market] and unfortunately they’ve missed that window.”
—Harriet Torry contributed to this article.