As we hit the middle of summer, home supply is on the rise and existing-home sales declined for the fourth straight month in May, nationwide. And while home sales might be down, the median existing-home sales price reached $407,600, exceeding $400,000 for the very first time.
But while housing inventory has increased 12.6% from April, we actually still have a decline of 4.1% in supply when compared to this time last year. Unsold inventory sits at a 2.6 month supply at the current sales pace, up 2.2 months from April.
“Further sales declines should be expected in the upcoming months given housing affordability challenges from the sharp rise in mortgage rates this year,” said NAR Chief Economist Lawrence Yun. “Nonetheless, homes priced appropriately are selling quickly and inventory levels still need to rise substantially – almost doubling – to cool home price appreciation and provide more options for home buyers.”
Imbalance and transition appear to be the theme for the current national market with hopes of normalization to come with inventory, mortgage rates, rental prices and number of buyers in the market. It’s more important than ever for individual consumers to focus on local market activity to make decisions and investments.
Cool Off or Crash?
Let’s take a look at the stats:
Existing-home sales declined for the fourth straight month and were down 3.4% from April and 8.6% from one year ago.
Month-over-month sales declined in three out of four major U.S. regions, while year-over-year sales slipped in all four regions.
“Home sales have essentially returned to the levels seen in 2019 – prior to the pandemic – after two years of gangbuster performance,” said NAR Chief Economist Lawrence Yun. “Also, the market movements of single-family and condominium sales are nearly equal, possibly implying that the preference towards suburban living over city life that had been present over the past two years is fading with a return to pre-pandemic conditions.”
Pending home sales crept higher in May, ending a six-month streak of declines with a slight rise of 0.7% from April.
Regionally, month-over-month results were mixed as the Northeast and South experienced increases while the Midwest and West posted decreases. Year-over-year contract activity slid in all four major regions.
At $407,600, the median existing-home sales price exceeded $400,000 for the first time in May 2022 and represents a 14.8% increase from one year ago. This marks 123 consecutive months of year-over-year increases, the longest-running streak on record. In May 2021, $355,000 was the median existing home sales price and the increases are being seen across all regions.
Who Are the Buyers?
First-time buyers were responsible for 27% of sales in May, down from 28% in April and down from 31% in May 2021.
All-cash sales accounted for 25% of transactions in May, down from 26% in April and up from 23% recorded in May 2021.
Individual investors or second-home buyers, who make up many cash sales, purchased 16% of homes in May, down from 17% in April and 17% in May 2021.
Distressed sales – foreclosures and short sales – represented less than 1% of sales in May, essentially unchanged from April 2022 and May 2021.
As for Mortgage Rates?
Mortgage rates hit their highest point since 2008 during the middle of June and have since moved lower and lower heading into July. Mortgage News Daily reports that this cycle was a repeat of a similar pattern that played out in May. These patterns might suggest that the mortgage rate is trying to find a ceiling after 2022 started with six of the worst months on record.
Mortgage rates surged in the first half of 2022, with the average 30-year fixed rate growing by 248 basis points (2.48%) from Jan. 6 to June 30, according to Freddie Mac.
“A lot of factors have come together to push mortgage rates to their highest level in 13 years and dampen home sales. High inflation expectations and the Fed tapering their purchases of mortgage-backed securities (MBS) both contributed to the interest-rate hikes, which have in turn pushed up mortgage rates”, suggests Taylor Marr, Deputy Chief Economist at Redfin. “The bright spot for homebuyers is that the spike in mortgage rates has already happened. The current 6% mortgage rates already have future interest-rate expectations baked in. I expect interest rates to remain high and the housing market to remain relatively quiet for the next few months.”
And Rental Prices …
While rent prices, historically, are expected to rise year over year, there are signs of a summer slow down.
After surging 11.4% over the past 12 months, the median national rent for a one-bedroom apartment rose just 0.5% in June compared to a month earlier, while the median two-bedroom rent fell 2.9%, according to data from rental marketplace Zumper.
Looking Ahead
There’s a good chance that home prices will continue to rise.
The CoreLogic HPI Forecast indicates that home prices will increase on a month-over-month basis by 1% from May 2022 to June 2022 and on a year-over-year basis by 5% from May 2022 to May 2023.
Deputy Chief Economist for CoreLogic, Selma Hepp explains, “Slowing home price growth reflects the dampening consequence of higher mortgage rates on housing demand, which was the intention. With monthly mortgage expenses up about 50% from only a few months ago, fewer buyers are now competing for continually limited inventory. And while annual home price growth still exceeds 20%, we expect to see a rapid deceleration in the rate of growth over the coming year. Nevertheless, the normalization of overheated buying conditions should bring about more of a balance between buyers and sellers and a healthier overall housing market.”
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