Sales of previously owned homes dropped 9.7% in May from the prior month, as the coronavirus pandemic kept shoppers indoors during the typically busy spring homebuying season.
But record-low interest rates have lured buyers off the sidelines in recent weeks, economists and brokerages say, and they expect sales to pick up starting in June.
Existing-home sales fell in May to a seasonally adjusted annual rate of 3.91 million, the National Association of Realtors said Monday. Previously-owned homes make up most of the housing market.
Sales have plunged since hitting a 13-year high in February. The May closings represent the lowest annualized sales activity since October 2010, said Lawrence Yun, NAR’s chief economist.
Economists surveyed by The Wall Street Journal expected an 8.8% monthly decline.
Homes typically go under contract a month or two before the contract closes, so the May data largely reflects purchase decisions made in March or April, when millions of Americans were staying home to prevent the spread of the coronavirus.
“We hit a low point in the month of May, [but] it looks like quite a sharp rebound ahead,” Mr. Yun said, citing an increase in pending sales in some regions in recent weeks. “It looks like a V-shaped recovery for the housing sector.”
Ashley Leonard and Justin Leonard closed on the purchase on their first house in Beech Island, S.C., in May. The couple had previously been living in a rental apartment with their 2-year-old daughter.
“We weren’t serious buyers up until probably three weeks or so into quarantine,” Ms. Leonard said. “Then we looked around and realized we had zero space and we needed to move into a permanent house.”
In May and June, home shopping has increased as business activity has opened up in many states and mortgage rates have stayed low, real-estate agents say. The average rate on a 30-year fixed-rate mortgage fell to 3.13% last week, the lowest level on record, said mortgage-finance giant Freddie Mac.
“As economies are opening up again, we’re seeing consumers spend,” said David Berson, chief economist at Nationwide, citing a record jump in retail sales in May. “The same thing will be true of housing.”
Amy Rohrer and Konner Rohrer of Dallas had planned to buy a house in the next year or so, but decided to start shopping this spring after seeing that rates had dropped to new lows.
“We thought, ‘Let’s see what we can qualify for, since the interest rates are so low right now,’” said Ms. Rohrer. “We qualified for more than we thought and we could afford more than we thought, so we met some Realtors and got going.”
Existing-home sales fell the most month-over-month in the Northeast, at 13%, and in the West, at 11.1%, according to the NAR data.
The median existing-home price rose 2.3% from a year earlier to $284,600. A shortage of homes for sale in many markets has kept prices elevated, economists say. The number of homes for sale at the end of May rose from April to 1.55 million units, NAR said. At the current sales pace, there was a 4.8-month supply of homes on the market at the end of May.
New-home sales, which make up about 10% of the market, started to show more positive signs in May. Housing starts, a measure of U.S. home-building, rose 4.3% in May from April, the Commerce Department said last week. Residential permits, which can be a bellwether for future home construction, rose 14.4%.
New-home sales are likely to pick up faster than existing-home sales, because the supply of existing homes on the market is limited and consumers might be more comfortable during the pandemic touring newly built homes, Mr. Berson said.