Rosalind Evans
Pre-owned home sales in June plunged by 3.3% compared to May, resulting in a seasonally adjusted annualized rate of 4.16 million units, as the National Association of Realtors reported.
This dip marks an 18.9% decrease compared to the same period in the previous year and is the slowest sales pace recorded for June since 2009.
The sluggishness in the housing market can be attributed to an acute shortage of available homes rather than a lack of demand. There were merely 1.08 million homes listed for sale at the end of June, which is 13.6% less than in June 2022. Given the current sales pace, this translates into a 3.1-month supply. A balanced market is considered to have a six-month supply.
Lawrence Yun, Chief Economist for the Realtors, expressed, “There simply aren’t enough homes for sale. The market could comfortably handle a doubling of inventory.”
This scarcity is putting persistent upward pressure on home prices. The median price of a pre-owned home sold in June was $410,200, the second-highest price ever recorded by the Realtors. June of last year witnessed the highest price, surpassing this year’s by a narrow 1%. However, this median value also reflects the properties currently in demand. With the mortgage rates significantly higher than last year, the lower end of the market is the most active.
Yun added, “While home sales have declined, prices remain solid in most areas of the country. The lack of supply still leads to multiple offers, with about a third of homes selling above the listing price last month.”
It seems improbable that sales will bounce back soon, as steep mortgage rates impact affordability. The Realtors’ June sales data is based on closings, likely reflecting contracts signed in April and May. During these months, mortgage rates lingered around the mid-6% range, then surged past 7% towards the end of May and remained there throughout June, while home prices kept rising.
First-time buyers are particularly feeling the pinch, with their proportion of June sales dropping to 26%, a decrease from 30% in June 2022. This is the lowest percentage recorded since the Realtors began monitoring this indicator.
However, the market’s higher end seems to be stabilizing. While sales have declined across all price brackets, the decrease is less substantial at the top end. This contrasts with the previous year when high-end home sales were falling rapidly.
Buyers increasingly resort to cash purchases to secure properties as the market grows more competitive. All-cash sales constituted 26% of June’s transactions, a slight increase from both May and the previous year’s June.
Although the existing home market is unlikely to recover quickly, the newly constructed home sales are faring better. The largest homebuilder in the nation, DR Horton, reported a significant surge in new orders in its latest earnings release on Thursday.
“Even with rising mortgage rates and inflationary pressures, our net sales orders rose by 37% from last year’s quarter. Both new and existing homes at affordable price points are in short supply. At the same time, demographic trends continue to support housing demand,” Donald Horton, the Chairman of the Board, stated in a release.
As the housing market navigates through these challenging times, the persistent supply shortage issue continues to dominate. While existing home sales are struggling, builders like DR Horton are experiencing a surge in demand for new constructions. Higher mortgage rates and limited supply mainly affect first-time and lower-end buyers. Despite these challenges, the market’s upper segment shows resilience, suggesting a complex and multifaceted landscape. The industry will be closely watching these trends, hoping for a balanced supply-and-demand scenario that could stabilize the housing market and ease the pressures buyers and sellers face.
