The housing market is currently facing a challenging situation, with sales of previously owned homes at a 30-year low. In May, existing home sales were essentially flat, experiencing a 0.7% decrease from April. The National Association of Realtors reported that the annualized rate of sales was 4.11 million units, marking a 2.8% decline from the previous year. This slow sales pace can be attributed to the surge in mortgage rates that occurred in April. The average rate for a 30-year fixed loan rose from just below 7% to over 7.5% before dropping slightly in May. Despite the slight decrease, the current rate is still around 7%, making it challenging for potential buyers to afford a new home.
One of the significant changes observed in the housing market in May was the increase in inventory. The inventory of homes for sale rose by 6.7% compared to the previous month and was 18.5% higher than in May of the previous year. Despite the increase in inventory, the supply of homes is still relatively low compared to the demand. At the current sales pace, there is only a 3.7-month supply of homes available. While more inventory could potentially boost home sales and moderate price increases in the future, the current low supply continues to drive prices higher. The median price of an existing home sold in May reached a record high of $419,300, representing a 5.8% year-over-year increase.
When analyzing sales based on price segments, it is evident that the market is experiencing disparities. Home sales below $250,000 declined compared to the previous year, while sales in the $250,000 to $500,000 range saw a modest 1% increase. On the other hand, sales in higher price brackets, such as $750,000 to $1 million and over $1 million, significantly increased by 13% and nearly 23%, respectively. Cash transactions accounted for 28% of sales, indicating that buyers with available funds have an advantage in the current market. First-time buyers represented 31% of all sales, showing a slight increase from the previous year. Despite the high prices and limited inventory, two-thirds of homes went under contract in less than a month, highlighting the persistent competition in the market.
Looking ahead, housing experts are cautiously optimistic about the market’s trajectory. Lawrence Yun, the chief economist at the National Association of Realtors, expressed concerns about the lack of recovery in home sales despite expectations for a spring rebound. As inventory continues to increase and interest rates stabilize, there is hope that the market will witness a more balanced supply-demand dynamic. Consumers may benefit from a more extensive selection of properties and potentially lower price growth in the coming months. However, the market remains competitive for well-priced homes that require minimal repairs, as indicated by the increasing number of stagnant listings.
The housing market is currently facing challenges due to stagnant sales, record-high prices, and high mortgage rates. While the increase in inventory offers some hope for a more balanced market, the supply-demand imbalance is likely to persist in the near term. Buyers and sellers must navigate these challenges carefully to make informed decisions in a competitive and evolving market environment.