Lombardi Financial Cautions: Solid May Home Sales Figures Propped Up by Wealthy Investors

Lombardi Financial cautions that the strong home sales figures for May are not the result of an improving U.S. economy, but of wealthy investors.

Lombardi Publishing Corporation (www.LombardiPublishing.com), a 28-year-old consumer publisher that has served over one million customers in 141 countries, is warning that encouraging new and existing home sales data for May are not a result of improvements in the broader U.S. economy, but rather continued interest from well-heeled investors.

According to the National Association of Realtors, existing-home sales in May climbed 4.9% month-over-month to a seasonally adjusted rate of 4.89 million. In addition to being the second consecutive monthly gain, it’s also the highest monthly rise since August 2011. Some economists believe the home buyers are benefiting from rising inventory, slow price growth, the improving job market, and a decline in mortgage rates. (Source: “Existing-Home Sales Heat Up in May, Inventory Levels Continue to Improve,” National Association of Realtors web site, June 23, 2014; http://www.realtor.org/news-releases/2014/06/existing-home-sales-heat-up-in-may-inventory-levels-continue-to-improve.)

“On the surface, these numbers look encouraging, but there is more to May’s existing home sales data than meets the eye,” says economist and lead contributor Michael Lombardi. “For starters, sales were down five percent year-over-year; this suggests the housing recovery is actually cooling. On top of that, first-time home buyers, a benchmark for how well the economy is doing, accounted for just 27% of all activity; down from 29% in April.”

Lombardi explains that the annual decline in first-time home buyers is even worse. In May 2013, they accounted for 28% of sales; in May 2012, it was 34%; and in May 2011, it was 36%. The 30-year average for first-time home buyers—a number economists consider ideal—is 40%. (Source: Schmit, J., “First-time buyers losing out as home sales rise,” USA Today web site, June 29, 2013; http://www.usatoday.com/story/money/business/2013/06/29/first-time-home-buyers/2472925/.)

“First-time home buyers are being squeezed out of the housing market. All-cash sales made up 32% of existing transactions in May, with individual investors snapping up 16% of existing homes,” Lombardi adds. “The most stable segment of existing home sales is those in the $1.0-million-plus bracket, but unfortunately, they only account for 2.4% of transactions. The biggest losers? Homes listed up to $500,000, in particular those under $250,000.”

Lombardi observes that the same dynamics are at play with new home sales, which, climbed 18.9% month-over-month in the U.S. to a seasonally adjusted rate of 504,000—the highest level in six years.

“Again, the data sound good, but it’s important to remember that newly built homes only account for around 19% of all home-buying activity,” Lombardi comments. “First-time home buyers account for around 16% of new-home purchases; between 2001 and 2007, the average range was 25% to 28%.” (Source: Hudson, K., “Housing Recovery’s Missing Link: First-Time Buyers,” The Wall Street Journal, May 23, 2014; http://online.wsj.com/news/articles/SB10001424052702304479704579579792502256878.)

Lombardi observes that when it comes to homes sold by sales price, there are some clear winners. On the plus side, the number of new homes sold between $150,000 and $199,999 increased from 6,000 in May 2013 to 10,000 this year. The only other clear winners were homes sold between $400,000 and $499,999 (up 133% at 7,000), and $500,000 to $749,999 (up 100% at 4,000). Homes over $750,000 were steady at 1,000. (Source: “New Residential Sales in May 2014,” U.S. Census Bureau web site, June 24, 2014; http://www.census.gov/construction/nrs/pdf/newressales.pdf.)

“Do May’s home sales data suggest we are in the midst of a real U.S. housing recovery? Not with rising home prices, a sluggish economy, and stagnant wages holding first-time buyers back,” Lombardi concludes. “These weak economic indicators do, however, explain the underlying new and existing home sales data.”

Founded in 1986, Lombardi Publishing Corporation, which has served over one million customers in 141 countries, is one of the largest consumer information publishers in the world. For more information on Lombardi Publishing Corporation, visit www.LombardiPublishing.com.

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Release ID: 52762