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Housing Market Amid Record High Prices But Stagnant Sales

Housing Market Amid Record High Prices But Stagnant Sales

The housing market saw little movement in May, as existing home sales remained largely unchanged despite a surge in home prices to unprecedented levels. Mortgage rates continued to hover around high levels, contributing to the slow pace of sales.

According to the National Association of Realtors (NAR), the rate of existing home sales in May was nearly flat, dipping by 0.7% from April to a seasonally adjusted annual rate of 4.11 million units. Compared to May of the previous year, sales dropped by 2.8%.

These figures reflect transactions based on contracts signed in March and April. The slow pace of sales followed a significant increase in home prices observed in April. The average rate for a 30-year fixed mortgage began April just below 7%, peaked above 7.5% by mid-month, and then settled back to around 7% by May, as reported by Mortgage News Daily.

“Home sales refuse to recover,” remarked Lawrence Yun, chief economist at the NAR. “I thought we would notice a restoration this spring. We are not seeing it.”

Regionally, sales were stable in all areas except the South, which experienced a 1.6% decline. Notably, the inventory of homes for sale saw a significant increase, rising by 6.7% from the previous month and 18.5% from May of last year. With the current sales rate, the market now has a 3.7-month supply of homes. Despite the increase, the inventory remains insufficient to meet demographic demands and buyer interest.

“Eventually, more products will help boost home sales and tame house price increases in the upcoming weeks. Increased housing supply spells good news for consumers who want to see more properties before making buying decisions,” Yun added.

The ongoing demand for homes continues to drive prices upward. The median price of an existing home reached a record $419,300 in May, marking a 5.8% increase year over year and the highest recorded by Realtors. This price surge is the strongest since October 2022, with increases observed across all regions.

The NAR highlighted that the typical mortgage payment for a standard home has more than doubled in the past five years, and home prices have risen by over 50% during the same period, partly due to a shift towards higher-end properties.

Sales of homes priced below $250,000 decreased from a year ago, while those priced between $250,000 and $500,000 increased by just 1%. Sales of homes in the $750,000 to $1 million range rose by 13%, and those over $1 million saw a nearly 23% increase.

Cash purchases remained significant, making up 28% of sales. First-time buyers accounted for 31% of sales, up from 28% the previous year. Despite higher prices, two-thirds of homes went under contract in less than a month. However, Redfin, a real estate brokerage, noted that an increasing number of listings are remaining on the market longer. Well-priced homes that require minimal work sell quickly, while others linger.

The housing market faces ongoing challenges as it grapples with high prices and fluctuating mortgage rates, impacting both sales and inventory levels.