In May, sales of previously occupied U.S. homes saw a slight uptick, rising by 0.8% from April. This increase, while positive, comes amid stubbornly high mortgage rates and escalating home prices, which continue to make homebuying less affordable for many Americans. According to the National Association of Realtors (NAR), the seasonally adjusted annual rate of existing home sales reached 4.03 million units in May, marking the slowest sales pace for this month since 2009, when the housing market was still recovering from a crash.
The sales figures also revealed a 0.7% decline compared to May of the previous year, illustrating ongoing challenges in the housing market. Notably, the latest data outpaced economists' expectations, which had forecasted a sales pace of 3.95 million units, as reported by FactSet. This trend underscores the ongoing difficulties faced by potential homebuyers amid high prices and interest rates.
In May, the national median home sales price rose to $422,800, representing a 1.3% increase from a year earlier. This figure sets a new record for the month of May, although it reflects the slowest annual price growth since June 2022. Lawrence Yun, NAR’s chief economist, attributes the subdued sales to the persistent high mortgage rates, indicating that a decrease in interest rates could attract more buyers and sellers back into the housing market.
The U.S. housing market has experienced a downturn since early 2022 due to rising mortgage rates, which have significantly impacted affordability. Last year, home sales fell to their lowest levels in nearly three decades. The average rate for a 30-year mortgage has hovered just above 7% this year, with recent averages around 6.81%. Homes sold in May likely went under contract when rates fluctuated between 6.62% and 6.89%, making affordability a key concern for many prospective buyers.
High mortgage rates continue to add hundreds of dollars to monthly payments, creating significant hurdles for potential homebuyers. Since May 2019, the median U.S. home sales price has surged by 52%, while the U.S. hourly wage rate has only increased by 30%. Consequently, buyers now require an annual income of $91,960 to afford a typical home with a 20% down payment, which is nearly 87% more than what was needed four years ago, according to Realtor.com.
The escalating affordability constraints are particularly limiting for first-time buyers, who accounted for only 30% of home sales last month, down from the historical average of 40%. Economists predict that mortgage rates will remain relatively stable, forecasted to stay between 6% and 7% for the remainder of the year. This stability may provide opportunities for home shoppers who can afford current rates.
For those buyers who can navigate the current market, the increase in available properties presents more options. By the end of May, there were 1.54 million unsold homes, reflecting a 6.2% increase from April and a 20.3% rise compared to May last year. However, this inventory remains well below the approximately 2 million homes typically available before the pandemic. The month-end inventory equates to a 4.6-month supply at the current sales pace, slightly up from April's 4.4-month supply and higher than the 3.8 months recorded in May last year.
Homes are also taking longer to sell, with typical market times extending to 27 days last month, compared to 24 days a year prior. As the inventory increases and the pool of qualified buyers shrinks, sellers may face pressure to lower their asking prices or offer incentives. In fact, only 28% of homes sold above their list price last month, a decrease from 30% a year earlier.
Amid these changes, many homebuilders are responding by reducing prices and offering incentives like mortgage rate buydowns to attract buyers. Currently, the supply of new homes stands at approximately 8 months. This shift indicates a transition from a seller-friendly market to one that is more balanced, according to Danielle Hale, chief economist at Realtor.com, who notes, “This means we’re seeing more buyer-friendly market signals than we have in years.”
