Rosalind Evans
The National Association of Realtors reported virtually no change in the sales of pre-owned homes in May compared to April, with a minor increase of 0.2%, making it an annualized, seasonally adjusted rate of 4.30 million units. Yet, compared with the same period last year, the sales showed a substantial drop of 20.4%.
Several factors contribute to the languid spring sales rhythm, including high home prices, a spike in mortgage rates, and a critical shortage of properties on the market.
As of May’s end, the housing market offered just 1.08 million homes, a decrease of 6.1% from May last year. Given the current sales rate, this represents a supply that would last for three months. A six-month supply is typically indicative of a balanced market. Pre-pandemic, the housing market held almost double the current amount of available homes.
According to Lawrence Yun, chief economist for the National Association of Realtors, new homes are selling at a pace that echoes the pre-pandemic era due to a surplus of inventory. However, sales of existing homes have seen a significant dip because the supply is currently about half of what it was in 2019.
The sales in May are based on finalized transactions, which likely started as contracts in March and April. During this time, mortgage rates experienced fluctuations. The average contract interest rate for the popular 30-year fixed mortgage began at over 7% in March, fell close to 6% briefly, then climbed again, spending most of April around 6.5%.
Despite the sluggish sales rate, persistent demand has prevented a more substantial drop in home prices. In May, the median price of a pre-owned home was $396,100, a reduction of 3.1% from May 2022. Although prices have increased in the Northeast and Midwest, they have declined in the South and West.
While this is the most significant price drop in over ten years, it is a median calculation, so it tends to favour the category of home that sells the most. At the moment, homes with lower prices are attracting the most interest. All price categories now have lower sales than a year ago, with homes in the $250,000 to $500,000 range seeing a 12% decrease in sales and those between $750,000 and $1 million experiencing a 21% drop. Other price indices reflecting repeated sales of similar homes indicate a price rise.
The tug-of-war between robust demand and limited supply maintains a competitive market. About one-third of properties were sold above the asking price. Homes stayed on the market for an average of 18 days in May, a decrease from 22 days in April but an increase from 16 days in May 2022. In May, nearly three-quarters of sold homes were on the market for less than a month.
Danielle Hale, chief economist for Realtor.com, predicts a challenging path for buyers in 2023 due to fewer homeowners intending to sell. However, a potential silver lining is a projected gradual decrease in mortgage rates and stabilization of high housing costs due to a sustained dip in home prices.
The onset of the summer housing season mirrors the spring market with slower sales resulting from a scarcity of supply. A report from Redfin, a real estate brokerage, noted a 16% decrease in pending home sales from a year ago over the four weeks ending June 18. These pending sales reflect signed contracts, not completed sales.
Despite the drop in sales, Redfin reported an 11% year-over-year increase in requests for tours and other early-stage buying services. The market is experiencing a surplus of buyers and a deficit of homes for sale, with new listings down by 24% compared to a year ago. The total number of available homes has decreased by 8%, marking the most significant drop over a year.
The current state of the housing market poses significant challenges for buyers. Despite slower sales, demand remains strong, resulting in a competitive market that seems unlikely to cool off anytime soon. A scarcity of homes for sale combined with high prices and fluctuating mortgage rates presents a complex situation for buyers and sellers alike. As we progress, it will be interesting to watch how the market adapts to these trends and whether measures will be taken to address the imbalance.
