Existing Home Sales Decline as Record High Prices Persist

Falling Existing Home Sales in May Signal Market Shift

Existing home sales have dropped for the third straight month in May, attributed to high mortgage rates and record-high prices, according to the National Association of Realtors (NAR). The trend of low inventory and strong demand has been pushing up home prices continuously, with the median sales price hitting a new high of $419,300. However, the rise in inventory is predicted to slow down home price growth in the near future.

Due to lower mortgage rates, many homeowners are choosing to stay put and avoid trading up to higher rates. This behavior is contributing to higher home prices and diminished resale inventory. As mortgage rates gradually decrease in the upcoming months, it is expected that demand will increase, unlocking previously held inventory. This decrease in rates is contingent on future inflation reports.

In May, total existing home sales, which include single-family homes, townhomes, condominiums, and co-ops, fell by 0.7% to a seasonally adjusted annual rate of 4.11 million. This represents a 2.8% decrease compared to sales from a year ago.

The first-time buyer share in May was at 31%, down from 33% in April but up from 28% in May 2023. The inventory level also saw an increase, rising from 1.20 million units in April to 1.28 million units in May, marking an 18.5% year-over-year increase.

With a 3.7-month supply, unsold inventory in May increased from 3.5 months last month and 3.1 months a year ago. Despite this rise, the inventory remains significantly low compared to a balanced market’s conditions of 4.5 to 6 months’ supply, highlighting the ongoing necessity for increased home construction.

The median sales price of existing homes in May stood at $419,300, up by 5.8% from the previous year, marking a new record high. However, the anticipated increase in inventory is likely to moderate the rate of price growth in the near future.

Regionally, existing home sales in May varied across the four major regions. The Northeast, Midwest, and West saw no change in sales, while the South experienced a 1.6% decline. Year-over-year sales showed a decrease in three of the four regions, ranging from -1.3% in the West to -5.1% in the South, with the Midwest seeing a 1.0% increase in sales compared to the previous year.

The Pending Home Sales Index (PHSI), a leading indicator based on signed contracts, decreased from 78.3 to 72.3 in April. Year-over-year, pending sales were down by 7.4%.

FAQs

1. Why have existing home sales been declining?

Existing home sales have been falling due to high mortgage rates and record-high prices, which have deterred potential buyers from entering the market.

2. Will increasing inventory help stabilize home prices?

With the rise in inventory, home price growth is expected to slow down as the market becomes more balanced.

Conclusion

The decline in existing home sales in May indicates a shift in the housing market dynamics. As mortgage rates gradually decrease and inventory levels rise, the market is expected to see an increase in demand and a stabilization of home prices. It will be crucial to monitor future inflation reports and construction activity to gauge the sustainability of this anticipated market shift.

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