The housing market is currently experiencing a significant downturn, with sales of previously owned homes hitting a 30-year low. In May, sales remained essentially flat, decreasing by 0.7% from April to a seasonally adjusted, annualized rate of 4.11 million units. These numbers, reported by the National Association of Realtors (NAR), indicate a 2.8% decline from the previous year. The sluggish sales pace can be attributed to high mortgage rates and soaring home prices, which continue to reach new record highs.
One of the key factors contributing to the stagnant sales in the housing market is the increase in mortgage rates. In April, the average rate on a 30-year fixed loan rose from just below 7% to over 7.5%, before settling back slightly in May. Currently, the rate stands at around 7%. This spike in mortgage rates has made it difficult for potential buyers to afford homes, thereby dampening the recovery of the housing market. Lawrence Yun, the chief economist at NAR, expressed disappointment at the lack of a rebound in home sales, stating, “Home sales refuse to recover. I thought we would see a recovery this spring. We are not seeing it.”
Despite the sluggish sales, the inventory of homes for sale saw a significant increase in May, rising by 6.7% month-to-month and 18.5% year-over-year. At the current sales pace, there is now a 3.7-month supply of homes on the market. While the increase in inventory is positive news for consumers, the demand continues to outpace supply, resulting in higher home prices. The median price of an existing home sold in May reached a record-high of $419,300, reflecting a 5.8% increase compared to the previous year. Prices have also seen a significant uptick in all regions, with the median price doubling in the last five years.
The distribution of sales based on price points reveals an interesting trend in the housing market. Sales of homes priced below $250,000 saw a decline from the previous year, while sales within the $250,000 to $500,000 range increased marginally by 1%. In contrast, sales of homes priced between $750,000 and $1 million surged by 13%, and sales of properties over $1 million experienced a substantial 23% growth. Cash purchases accounted for 28% of all sales, indicating a preference for liquidity in uncertain market conditions. Additionally, first-time buyers made up 31% of total sales, showing resilience in the face of rising home prices.
Despite the challenges posed by high prices and limited inventory, the housing market continues to exhibit strong demand. Two-thirds of homes are going under contract in less than a month, highlighting the competitive nature of the market. However, there are signs of fatigue in certain segments, with an increasing number of listings becoming stale. Homes that are attractively priced and in good condition are selling quickly, while others are languishing on the market. As the housing market grapples with these challenges, only time will tell how the dynamics will evolve and what the future holds for prospective buyers and sellers.
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