The steady rise in US home prices continued in May, when median prices jumped above $400,000 for the first time while sales activity slowed under pressure from rising mortgage costs.
Rapidly increasing interest rates are spreading across the US markets as the Federal Reserve tries to combat inflation. Stocks entered a bear market this month, consumer confidence took a hit, and economists forecast the possibility of a recession increasing as higher rates threaten to halt growth.
But the demand for home purchases continues to outpace unusually low levels of supply and drive prices higher. The National Association of Realtors said Tuesday that the median price of existing homes rose 14.8% in May from a year earlier to $407,600, a record high in data going back to 1999. That rate was slightly higher than the previous month.
The combination of rapidly rising rates and record home prices is driving many buyers off the market, making it especially difficult for first-time buyers.
These factors are cooling the frenetic pace of sales that began two years ago when pandemic restrictions eased and buyers scrambled to find homes with more space. The association said sales of previously owned homes fell for the fourth consecutive month, falling 3.4% in May from the previous month to a seasonally adjusted annual rate of 5.41 million, the weakest rate since June 2020. May sales fell 8.6% from a year earlier.
Many housing economists expect steeper borrowing rates to slow home price growth in the second half of the year. The average 30-year mortgage rate came in at 5.78% in the week to Thursday, the highest since 2008 and up from 2.93% a year ago, according to housing finance agency Freddie Mac..
May sales data largely reflects buying decisions made in April or March.
“The impact of higher mortgage rates was not fully reflected in the data,” said Lawrence Yun, chief economist at NAR. “In the coming months, I expect a further decline in home sales.”
Mortgage applications for home buyers declined in response to higher rates. Two real estate brokerages said last week they were laying off hundreds of employees due to lower home buying.
For now, economists mostly expect home prices to continue rising even if the growth rate is likely to decline. Doug Duncan, chief economist at Fannie MaeAnd the
He said he expects home prices to grow year-on-year by about 5% by the end of 2022.
““The impact of higher mortgage rates was not fully reflected in the data.”“
“Although prices are constraining affordability, there is still an imbalance between supply and demand,” he said. ‘Housing prices have a lot of momentum.’
Nearly 60% of homes sold in May were above list price, according to real estate brokerage Redfin. corp.
Inventories rose sharply in some markets, albeit from very low levels. In the Austin, Texas, metro area, active listings in May were up 146% from a year earlier, according to the Austin Board of Realtors. In the Denver area, active listings rose 76% year-over-year in May, according to the Denver Metro Realtors Association.
Cleveland-area real estate agent Mike Ferrante said buyers are still making solid offers because they are keen to secure purchases in case interest rates rise further. He said he registered a house in May and received three offers, including offered rates and favorable terms.
“When you start seeing homes on the market for more than a few days, buyers will discover that competition is diminishing,” he said. “I think there will be a slowdown.”
The typical home sold in May was on the market for 16 days, NAR said, down 17 days from the previous month.
Spring is often the busiest season for home sales, with 40% of typical existing home purchases occurring between March and June, according to NAR.
Consumers are pessimistic about the housing market. Only 17% of consumers surveyed by Fannie Mae in May said it was a good time to buy a home, down from 35% a year earlier and a record drop in data going back to the middle of 2010.
Michelle Zuniga said she retracted a contract to buy a newly built home in Labelle, Florida, in May after the builder raised the price by $49,500 to explain the increased costs. She said that between the high rate and interest rates on the mortgage, she is no longer eligible for a loan. Ms. Zuniga is now considering moving to Georgia for affordable housing.
“I am very upset that this happened,” she said. “You feel lost in the sense that I want to move forward, I want to invest, and I’m not able to do that.”
Existing home sales fell month on month in the West and Midwest, declining 5.3% in both regions.
Home construction has slowed due to supply chain problems and labor shortages. The National Association of Home Builders said last week that a gauge of homebuilders’ confidence in the United States fell in June to a two-year low.
“We’ve really seen our traffic go down,” said George Hill, president of builder Woodhill Homes in Bend, Ore. “As the appreciation goes up and then you add the price factor up…it becomes very expensive.”
The Commerce Department said, last week, that home construction, a measure of US homebuilding, fell 14.4% in May compared to April. Housing permits, which could be a pioneer for future home construction, fell by 7%.
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