Existing home sales in the U.S. dropped to a two-year low in May as prices climbed to a record high – topping $400,000 mark for the first time – and mortgage rates further increased. Entry-level home buyers are continuing to get pushed out from the market.
Even with a monthly drop in sales four months in a row and declining affordability, the National Association of Realtors reports that the housing market remains fairly hot. Properties are typically staying on the market for a record low of 16 days. While supply is still low, prices could remain elevated and in some areas where bidding wars were prevalent, sellers are reducing the listing price.
“Existing home sales should continue to slow over the course of the year as mortgage rates move higher,” said David Berson, chief economist at Nationwide in Columbus, Ohio. “But in the absence of a deep and sustained economic downturn, home sales should not drop as they did in the housing bust – allowing prices to continue to move higher on average.”
Last month, existing home sales fell 3.4% to a seasonally adjusted annual rate of 5.41 million units. This is the lowest level since June 2020. Sales then were starting to rebound from the covid-19 lockdown slump. In the Northeast, sales rose but in the South, West and Midwest sales declined.
In a recent poll conducted by Reuters, economists forecasted sales would decrease to a rate of 5.40 million units. It was estimated that in order to see a housing market downturn, sales would need to drop to between a rate of 4 million to 4.5 million.
The median existing house price rose 14.8% from a year ago to an all-time high of $407,600 in May. This is the first time prices have crossed the $400,000 mark.
42% of houses sold in May were in the $250,000 to $500,000 price range. 19.3% of houses sold in the $500,000 to $750,000 bracket while 19.5% of homes sold were priced at $100,000 to $250,000.
The double-digit price growth came from the South and West but the migration to areas in the South due to a pandemic-driven migration, are slowing. This could help control price appreciation.
“The affordability migration will lose some steam now that interest rates have risen, which will make it a bit tougher to sell homes in those higher-price markets,” said Mark Vitner, a senior economist at Wells Fargo in Charlotte.
80% of homes that sold in May were on the market for less than a month. 27% of sales were from first-time buyers. It would take 2.6 months to drain the current inventory of existing homes at May’s sales pace. This is up from 2.5 months a year ago. A healthy supply is seen as a six-to-seven month supply.
Leave a Reply