Sales of existing homes fell in May, and more declines are expected
Sales of existing homes in May fell 3.4% to a seasonally adjusted annual rate of 5.41 million units, according to the National Association of Realtors.
Sales were 8.6% lower than in May 2021. April’s sales were also revised somewhat lower.
This is the weakest reading since June 2020, which was during the first months of the Covid pandemic. Adjusted for that, it is the lowest since January 2020.
This reading is based on completions during the month, and therefore represents contracts probably signed in March and April. During that time, the average interest rate on the 30-year fixed mortgage rose from around 4% to 5.5%. It is currently right around 6%, according to Mortgage News Daily. Rising prices, together with rapid rises in house prices and continued low supply, have given plausibility a triple blow.
“I expect a further decline in home sales,”[ads1]; said Lawrence Yun, chief economist at the National Association of Realtors. “The impact of higher mortgage rates is not yet fully reflected in the data.”
There were 1.16 million homes for sale at the end of May, an increase of 12.6% month-on-month, but still down 4.1% from May 2021. At today’s sales rate, this represents a 2.6-month supply.
Low supply continued to push up house prices. The median price of a house sold in May was $ 407,600, an increase of 14.8% from May 2021. It is the highest price recorded since real estate agents began tracking it in the late 1980s.
The offer is weakest at the lower end of the market, which is probably the reason why activity there continues to be weaker than at the higher end. Sales of homes priced between $ 100,000 and $ 250,000 fell 27% from a year ago. Sales of homes priced between $ 750,000 and $ 1 million were up 26%. Sales of homes priced above $ 1 million increased by 22% year over year.
However, the homes are being sold quickly. The houses were on the market for an average of only 16 days, the lowest recorded for real estate agents. Cash sales were still up to 25% of all sales. Investors accounted for 16% of all transactions, slightly down from April and from a year ago.
First-time buyers accounted for only 27% of all transactions, down from 31% a year ago. Affordability clearly hits them hardest, as rental prices also rise.
“Higher short-term interest rates from the Fed are helping to drive a much-needed housing recovery – a real estate revamp,” wrote Danielle Hale, chief economist at Realtor.com. “Although the rebalancing is necessary, it increases the challenge of navigating the housing market for both sellers and buyers as expectations and conditions adjust quickly.”
Realtor.com recently updated its forecast for home sales in 2022, and now estimates fewer this year than last year.
