May Home Sales Up: Rally to Follow?

Existing-home sales increased 2 percent, but median prices fell.

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Despite some optimistic-looking data released today, economists still don't see the housing market turning around anytime soon.

Existing-home sales rose 2 percent from April to May, beating consensus estimates, while median home prices fell roughly 6 percent from a year earlier, the National Association of Realtors reported.

But the relatively upbeat figures—this is just the second increase in sales in the past 10 months—was less than overwhelming to economists.

From a report issued by Joseph Brusuelas, chief economist at Merk Investments:

In what should be the best month of the traditional summer buying season the market observed a modest increase of 2.0%. The fall in prices did facilitate a decline in inventories, which provided a rare bit of sunshine in the market. However, at this juncture the conditions for a bottom to form in the housing sector are not ripe. Long-term rates have reassumed an upward trend and it is still quite difficult to obtain a non-conforming jumbo loan. While there are some good bargains for cash buyers and those that have information on prime foreclosures, the market is extremely fragile and has many more months of difficulty in front of it.

Meanwhile, Ian Shepherdson, the chief U.S. economist at High Frequency Economics, doesn't see the report sparking a near-term rally:

Next month's numbers should be weaker. Over the past few months the rate of fall of existing sales has slowed, as it did in early 06 and again in early 07; neither pause lasted, and we expect the same fate this time. Plunging prices and massive inventory are huge disincentives to home buying.