Existing home prices hit record $402,000 but sales tumble as housing market ‘painfully’ adjusts to rising rates

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Topline

Existing home sales fell for the fourth straight month in May in the latest sign that rising rates have dampened sales in the housing market, but prices still hit a record high above $400,000 in May as low housing inventory levels and supply chain constraints worsen. affordability challenges for potential buyers.

Highlights

Sales of existing homes fell 3.4% from April to a seasonally adjusted annual rate of 5.4 million in May, from 5.9 million a year ago, according to data released Tuesday by the National Association of Realtors.

Meanwhile, the median existing home price was a record $407,600, up nearly 15% from a year ago as prices rose in all regions of the country, marking 123 straight months of decline. year-over-year price increases for the longest streak of increases on record. said the NAR.

The number of homes sold is “essentially back” to pre-pandemic levels seen in 2019 “after two years of stunning performance,” NAR chief economist Lawrence Yun said in a statement on Tuesday, noting that further declines in sales should be expected in the coming months. rising mortgage rates add to affordability issues in the housing market.

With the Federal Reserve raising interest rates three times this year, mortgage rates have roughly doubled to 6% from a near-record low of 3% at the end of last year, which dampened demand for home purchases and drove up the cost of buying a home.

According to a Tuesday report from real estate brokerage Redfin, a homebuyer with a monthly budget of $2,500 has lost nearly $120,000 in buying power since late last year due to rising rates, with the monthly payment on the average mortgage climbing over $500 over the same period.

“The housing market is adapting quickly and painfully to soaring mortgage rates,” Pantheon Macro chief economist Ian Shepherdson said in emailed comments after the report, noting that housing inventory – still at historic lows – continues to push prices higher despite falling sales. .

Surprising fact

Fewer than 46% of homes for sale nationwide are affordable with a monthly budget of $2,500 at a 6% interest rate, compared to nearly 62% who would be affordable if rates were still at 3%, notes Redfin.

crucial quote

“Higher mortgage rates are needed to cool the scorching housing market, but they also put buyers in a difficult position,” Redfin chief economist Daryl Fairweather said in a statement. “The increase in monthly payments means that many house hunters must now consider smaller homes – perhaps farther from their ideal neighborhood – or stick to renting if their price is completely out of the market.”

Key Context

Historically high savings rates and government stimulus helped spark a home-buying spree during the pandemic, but signs of a slowdown quickly emerged as the Fed begins its cycle of interest rate hikes the most aggressive in two decades. The number of housing starts, or new homes whose construction has begun, plunged 14.4% to around 1.5 million last month from 1.8 million in April – significantly below economic projections calling for nearly of 1.7 million housing starts, and new home sales in April almost collapsed 17% from March.

To monitor

May new home sales data is expected to be released on Friday. An economist said around 600,000 new homes were sold last month, up from a sharp drop to 591,000 in April.

Further reading

Housing market ‘in free fall’ as new construction slumps – here’s when ‘reset’ could drive prices down (UKTN)

Mortgages top 6%, hitting highest level since 2008: Housing market could ‘torpedo’ US economy, expert warns (UKTN)

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