The housing market is currently facing a challenging situation with previously owned home sales hitting a 30-year low. In May, existing home sales remained stagnant, falling by 0.7% from April, resulting in a seasonally adjusted, annualized rate of 4.11 million units. This decline represents a 2.8% drop compared to the same period last year. The National Association of Realtors (NAR) reported that closed sales in May were based on contracts likely signed in March and April. Furthermore, the sluggish sales pace can be attributed to the significant increase in mortgage rates that occurred in April.
One of the significant changes in May was the sharp rise in the inventory of homes for sale, increasing by 6.7% from the previous month and 18.5% from a year ago. Despite this surge in inventory, the supply of homes remains low with a 3.7-month supply at the current sales pace. This shortage of inventory continues to drive up home prices, with the median price of an existing home reaching a record-high of $419,300 in May, up 5.8% from the previous year. Prices saw gains in all regions, indicating a widespread trend of increasing housing costs.
The housing market dynamics have notably shifted as sales of homes priced below $250,000 declined from the previous year. On the other hand, sales of homes priced between $750,000 and $1 million increased by 13%, and sales of homes priced over $1 million saw a substantial 23% gain. Cash transactions continue to represent a significant portion of sales, accounting for 28%, while first-time buyers constitute 31% of sales, up from 28% in the previous year. Despite the high prices and competition, two-thirds of homes are going under contract in less than a month, demonstrating the persistent demand in the market.
Chief economist Lawrence Yun expressed concerns about the lack of recovery in home sales, stating that he expected to see a rebound in the spring, which has not materialized. However, he remains optimistic that the increase in inventory will help stimulate home sales and moderate price gains in the coming months. The overall market sentiment suggests that consumers are eager to explore more property options before committing to a purchase decision. While the housing market faces challenges due to low inventory and high prices, the potential for a shift in market dynamics with increased supply offers a glimmer of hope for buyers and investors.