Implications:  Existing home sales surprised to the upside in May, beating the consensus expected pace despite setting the highest median price on record.  Sales of previously-owned homes rose 1.1% in May to a 5.62 million annual rate, and are now up 2.7% from a year ago.  Going forward, it is important to remember home sales are volatile from month to month, but we expect the general upward trend of the past several years to keep going.  That being said, tight supply and rising prices remain headwinds.  Inventories have now fallen on a year-over-year basis for 24 consecutive months and are down 8.4% from a year ago.  This has also affected the months' supply of existing homes – how long it would take to sell the current inventory at the most recent sales pace – which was 4.2 months in May, down from 4.7 months a year ago.  According to the NAR, anything less than 5.0 months is considered tight supply.  The good news is that demand for existing homes was so strong that a typical property only stayed on the market for 27 days in May, the shortest timeframe since the NAR began tracking in 2011.  Higher demand and a shift in the "mix" of homes sold toward more expensive properties has also driven up median prices, which have now risen for 63 consecutive months on a year-over-year basis, and reached a new record high in May.  The more expensive the home the stronger the sales growth has been over the past year, signaling that supply constraints may be disproportionately hitting the lower end of the market.  Further, tough regulations on land use raise the fixed costs of housing, tilting development toward higher end homes.  The NAR suggests that strong demand could also be pushing some properties into higher brackets as multiple offers boost the final sales price.  Although some analysts may be concerned about the impact of higher mortgage rates, it's important to recognize that rates are still low by historical standards, incomes are growing, and the appetite for homeownership is eventually going to move higher again.

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