One Of Janet Yellen's Biggest Concerns Just Got Crushed

There isn't much that worries Federal Reserve chair Janet Yellen. She dismissed the recent GDP slowdown as temporary due to poor weather and she brushed off the recent signs of accelerating inflation as noisy.

But she has explicitly expressed concern about one area of the economy: the housing market.

In her May testimony to the Joint Economic Committee, Yellen warned that housing data had been disappointing and that the Fed would be watching housing data points closely. "The recent flattening out in housing activity could prove more protracted than currently expected rather than resuming its earlier pace of recovery," she said.

So this morning's housing report should come as a bit of a relief.

Existing home sales beat expectations rising 4.9% month-over-month to an annualized pace of 4.89 million units. This was the highest monthly rise since August 2011 and showed that the housing market is rebounding from the winter lull.

"The Fed Chair is concerned about the risk to the broader economy from the housing sector, but the strength in the sales report today should reduce her concerns," writes Chris Rupkey at Bank of Tokyo-Mitsubishi in a note to clients. Here's more from Rupkey:

"What is a housing market recovery anyway? What do we want to see in this important economic statistic? Where is normal? Based on our estimates, a 4.89 million annual sales rate is close to the normal zone of 5.0 to 5.5 million. Activity was feverish in the housing bubble where 6.5 million homes changed hands in 2004 and again in 2005 until the Fed rate hikes started to bite. But normal could be where sales were in the late 90s, a little above a 5 million annual rate of turnover, when real GDP was fast and furious at 5%.

"Net net, existing home sales are back with a decisive 4.9% advance in May, shaking off the cold winter decline in January. Sales activity is just a hair away from being back in the all-is-well zone of 5.0-5.5 million. What about prices? Home prices are an important determinant of consumer confidence and their spending helps makes the economy go. Things looking good here. Single-family home prices shot up 6.2% to $213.6 thousand in May and are up 4.9% from May a year-ago, 2013. Our advice to you is to buy a house if you can find one at 213 thousand dollars. The economy is better than you think, and home prices have nowhere to go but up. Bet on it."

We'll be watching for Yellen's future comments on housing.