The median home price in the US surpassed $400,000 in May for the first time, even as the number of sales fell for the fourth month in a row and rising mortgage rates discouraged first-time buyers.
The average sale price of existing homes set a new record at $407,600, up 14.8% from a year earlier, the National Association of Realtors (NAR) said Tuesday.
With high prices and rising rates putting pressure on young homebuyers, the number of existing home sales dropped 8.6% from a year earlier to a seasonally adjusted annual rate of 5.41 million.
However, with supply tight, the housing market remains quite buoyant, with properties typically remaining on the market for a record 16-day low, and prices still haven’t dropped.
“Home sales have essentially returned to levels seen in 2019 – before the pandemic – after two years of rock-bottom performance,” said NAR Chief Economist Lawrence Yun.
“Further declines in sales are to be expected in the coming months, given housing affordability challenges due to the sharp rise in mortgage rates this year,” he said.
Average house prices in May and the change in price from a year ago are seen for each region
The median sale price of existing homes in the US set a new record of $407,600 in May, up 14.8 percent from a year ago, the National Association of Realtors said.
With supply still undesirably low, prices may remain high even as sellers are lowering the list price in some areas where bidding wars were once rife.
“Existing home sales are expected to 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 sustained economic downturn, home sales are unlikely to fall as they did in the housing crisis – allowing prices to continue to rise on average.”
Sales of existing homes fell in May to the lowest level since June 2020, when sales were reeling from the fall of the COVID-19 lockdown. Sales increased in the Northeast, but declined in the Midwest, West, and densely populated South.
Average home prices were highest in the West at $633,800. The average price in the Midwest was US$294,500, in the South it was US$375,000 and in the Northeast it was US$409,700.
Sales in May were mostly closings on contracts signed one to two months ago, before mortgage rates began to pick up amid rising inflation expectations and the Federal Reserve’s aggressive interest rate hikes.
The average contract rate on a 30-year fixed-rate mortgage jumped 55 basis points last week to a 13.5-year high of 5.78 percent, according to data from mortgage finance agency Freddie Mac.
That was the biggest one-week increase since 1987. The rate has risen more than 250 basis points since January.
Home sales below $250,000, a price range preferred by first-time buyers, have dropped sharply as mortgage interest rates rise, squeezing young homebuyers.
The average contract rate on a 30-year fixed-rate mortgage jumped 55 basis points last week to a 13.5-year high of 5.78%. It was the fastest increase in a week since 1987
The report joined housing starts, building permits and homebuilder sentiment in suggesting that the housing market was slowing under the weight of higher borrowing costs.
It was also the latest indication that the US central bank’s rapid monetary policy tightening was slowing the economy as a whole.
This was underscored by a separate report from the Chicago Fed on Tuesday showing that its National Activity Index dropped to a reading of 0.01 in May from 0.40 in April, which he said “suggests that economic growth fell in May”.
A value of zero for the monthly index has been associated with the expansion of the economy in the growth trend. Recession fears rose after the Fed’s decision last week to raise its policy rate by three-quarters of a percentage point, its highest since 1994.
The Fed has raised its benchmark overnight interest rate by 150 basis points since March.
The real estate market is the most sensitive sector to interest rates. Its slowdown could help align housing supply and demand and slow down price growth.
The annual rate of home price increases has slowed from its peak in early 2021
Sales in May were mostly contract closures signed one to two months ago, before mortgage rates began to pick up amid rising inflation expectations (file photo)
The median price of existing homes soared 14.8 percent from a year ago to an all-time high of $407,600 in May, crossing the $400,000 level for the first time.
The $250,000 to $500,000 price range represented 42.0% of homes sold last month, with the $500,000 to $750,000 segment representing 19.3%.
Only 19.5% of homes sold were in the $100,000 to $250,000 price range. Double-digit price growth was recorded in the South and West.
But migration caused by the pandemic to some areas of the South is slowing, which could help to rein in price appreciation.
“The affordability migration is going to lose some steam now that interest rates have gone up, which will make it a little harder to sell homes in these higher priced markets,” said Mark Vitner, a senior economist at Wells Fargo in Charlotte, North Carolina. .
There were 1.16 million homes on the market, after a seasonal monthly increase of 12.6%. The supply remained 4.1 percent below the previous year.
Steady monthly improvement may continue, with government data last week showing housing construction in May rose to the highest level since 2007.
At the pace of May sales, it would take 2.6 months to deplete the current stock of existing homes, up from 2.5 months a year ago.
A six to seven month supply is seen as a healthy balance between supply and demand. Eighty-eight percent of homes sold in May had been on the market for less than a month.
First-time buyers accounted for just 27 percent of sales, which economists say also explains why double-digit home price growth persists even as discounts become more common.
Cash sales accounted for 25 percent of transactions – these are mostly Wall Street institutions taking advantage of the growing demand for rent.