THE OUTLOOK FOR HOUSING SEEMS BRIGHTER after two reports this week reflected stronger-than-expected gains in new and existing home sales. Values are still rising, but at a much slower rate than in previous months.

In a joint news release, the U.S. Department of Commerce and the Department of Housing and Urban Development announced new home sales in May were up 18.6 percent from April, at an annual rate of 504,000 units. The median sales price for new homes sold in May 2014 was $282,000, with an average sales price of $319,200.

New home sales are an interesting barometer, as the lead time from when a buyer decides to purchase to the point where the home is built and the sale is completed is often several months. A buyer closing on a new home purchase in May, therefore, likely made the decision to purchase in February or March. So what we are seeing with the May results could be the first of several strong months.

The National Association of Realtors announced total existing home sales, defined as total sales of existing single-family homes, townhouses, condominiums and co-ops, rose 4.9 percent when compared to April sales data to a seasonally adjusted annual rate of 4.89 million from the revised 4.66 million homes sold in April — good, but still down significantly from May 2013, when 5.15 million existing homes were sold.

Home values, while still rising significantly, are cooling. The S&P/Case Shiller Home Price Indices, also released this week, showed that home prices nationally rose at an annual rate of 10.8 percent, a significant decline from April. San Francisco dropped below 20 percent for the first time in many months of reporting.

The outlook for housing remains strong, though headwinds still exist. Many economists cite the persistent tough lending environment and the lack of first-time home buyers in the market as major concerns. Interest rates remain low, helping to fuel affordability and spur demand.

But what will happen when the Fed starts increasing rates? Many expect rates to begin rising in 2015, perhaps sooner depending on inflationary pressures.

The housing market is sensitive to interest rate changes. When interest rates climbed unexpectedly last summer, it was almost like someone turned off the faucet, as buyers already frustrated by a tough seller’s market simply gave up and turned away from the dream of homeownership — at least temporarily.

Rates have dropped in recent months and buyers are returning, driving sales volumes and home values, albeit at a slower pace than a year ago when rates were at historic lows.

How is the market? Well, it’s better than it was in 2007 and appears to be moving in the right direction. We are not out of the woods yet — but it would seem the path is clearer.

Guy Benjamin (CAL BRE License #01014834, NMLS 887909) writes a weekly column for The Herald, offering general information on real estate matters. As it is impossible to address all possibilities and variations, he will try to answer individual questions by readers who contact him at 707-246-0949 or gbenjamin@rpm-mtg.com.

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