The average US home price broke through $400,000 for the first time in May, even as sales plummeted for a fourth straight month and rising mortgage rates discouraged first-time buyers.
The median selling price for existing homes set a new record of $407,600, up 14.8 percent from a year earlier, the National Association of Realtors (NAR) reported Tuesday.
With high prices and rising rates putting pressure on young homebuyers, existing home sales fell 8.6 percent year-on-year to a seasonally adjusted annualized rate of 5.41 million.
However, given the tight supply, the housing market remains quite hot, with properties typically remaining at record lows for 16 days on the market and prices yet to have fallen.
“Home sales have essentially returned to 2019 — pre-pandemic — levels after being gangbuster for two years,” said NAR chief economist Lawrence Yun.
“Further sales declines should be expected in the coming months as housing affordability is challenged by the sharp rise in mortgage rates this year,” he said.
For each region, the median home prices in May and the year-on-year price change are shown
The US median selling price for existing homes hit a new record of $407,600 in May, up 14.8 percent from a year earlier, the National Association of Realtors said
With supply still undesirably low, prices could remain high, although sellers are lowering the listing price in some areas where bidding wars used to be prevalent.
“Existing home sales should continue to slow throughout the year as mortgage rates rise,” said David Berson, chief economist at Nationwide in Columbus, Ohio.
“But in the absence of a deep and prolonged economic downturn, home sales should not fall as they did during the housing crisis – allowing prices to continue to rise on average.”
Existing home sales in May fell to their lowest level since June 2020 as sales rebounded from the COVID-19 lockdown slump. Sales rose in the Northeast but fell in the Midwest, West, and populous South.
Median home prices were highest in the West at $633,800. The median price in the Midwest was $294,500, $375,000 in the South and $409,700 in the Northeast.
May’s selling was largely in deals signed a month or two ago, before mortgage rates began to rise amid rising inflation expectations and the US Federal Reserve’s aggressive rate hikes.
The average contract rate for a 30-year fixed-rate mortgage rose 55 basis points last week to a 13.5-year high of 5.78 percent, according to data from mortgage financing agency Freddie Mac.
That was the biggest one-week hike since 1987. The interest rate is up more than 250 basis points since January.
Home sales below $250,000, a price range favored by first-time buyers, have fallen sharply as mortgage rates have risen, crowding out young homebuyers
The average contract rate for a 30-year fixed-rate mortgage rose 55 basis points last week to a 13.5-year high of 5.78 percent. It was the fastest one-week increase since 1987
The report joined housing starts, building permits and builder sentiment in indicating that the housing market was slowing under the weight of higher borrowing costs.
It was also the latest indication that rapid monetary tightening by the US Federal Reserve was slowing the broader economy.
This was underscored by a separate report from the Chicago Fed on Tuesday, showing that its National Activity Index fell to 0.01 in May from 0.40 in April, suggesting that economic growth slowed in May be.
A zero reading for the monthly index has been associated with the economy expanding with trend growth. Fears of a recession are mounting after the Fed decided last week to raise interest rates by three-quarters of a point, the biggest hike since 1994.
The Fed has raised its federal funds rate by 150 basis points since March.
The housing market is the most interest rate sensitive sector. Its slowdown could help reconcile housing supply and demand and slow price growth.
The annual rate of house price increases has slowed since its peak in early 2021
Selling in May was mostly deals signed a month or two ago, before mortgage rates started to rise amid rising inflation expectations (file photo).
The average price for existing homes rose 14.8 percent year over year in May to an all-time high of $407,600, breaking through the $400,000 mark for the first time.
The $250,000-$500,000 price bracket accounted for 42.0 percent of homes sold last month, while the $500,000-$750,000 segment accounted for 19.3 percent.
Only 19.5 percent of the homes sold were in the coveted $100,000 to $250,000 price range. Double-digit price increases were registered in the south and west.
But pandemic-driven migration to some areas in the south is slowing, which could help tame price increases.
“Migration to affordability will lose some momentum now that interest rates have risen, which will make it a bit harder to sell homes in these higher-priced markets,” said Mark Vitner, senior economist at Wells Fargo in Charlotte, North Carolina.
There were 1.16 million pre-owned homes on the market after a seasonal monthly increase of 12.6 percent. Supply lagged 4.1 percent year-on-year.
The steady monthly improvement could continue, with government data last week showing that home completions rose to their highest level since 2007 in May.
At the pace of sales in May, it would take 2.6 months to exhaust the current inventory of existing homes, up from 2.5 months a year ago.
A six to seven month supply is considered a healthy balance between supply and demand. 88 percent of the homes sold in May were on the market less than a month.
First-time buyers accounted for just 27 percent of sales, which economists say helps explain why double-digit home price growth is continuing even as discounts become more common.
Cash sales accounted for 25 percent of transactions — mostly Wall Street institutions benefiting from rising rental demand.