U.S. home sales should remain robust over the coming year

U.S. existing home sales rose by 5.1% m/m to 5.35 million units (annualized) in May. The reading came in well above expectations, which called for a smaller increase to 5.26 million. Revisions were also positive, bringing last month's reading up to 5.09 million (previously reported at 5.04 million). The gains help to more than erase April's unexpected pullback and represent the third consecutive month that sales have remained above the 5 million mark.

With single family sales rising in May, the pullback in inventory in this segment came as little surprise. Currently sitting at just 5.2 months, the available supply of single family homes still remains somewhat limited by historical standards. This has been lifting prices, which should motivate more sellers to put their homes on the market. It may also manifest on the construction side, as developers begin ramping up homebuilding activity to meet growing demand for housing.

The steady increase in the share of first-time homebuyers over the first 5 months of 2015 is evidence that we're finally starting to see the rotation away from an investor driven market in favor of more traditional homebuyers. As credit conditions continue to ease and diminishing labor market slack begins to manifest in stronger wage gains, sales should remain robust over the coming year.

"The stronger than expected reading on existing home sales implies a bit more strength from residential investment (mainly through brokers' commissions) in the second quarter than previously expected. As such, our current real GDP tracking for the second quarter is 0.1pp higher at 2.9% (annualized)." notes TD Economics