The US housing market continues to struggle to recover, with existing home sales declining 0.7% from April to a seasonally adjusted annual rate of 4.11 million, and 2.8% compared to May last year. Despite the decrease in sales, home prices continued to rise, marking the 11th consecutive month of growth. According to the National Association of Realtors, high mortgage rates and record-high prices are weighing heavily on potential buyers during the traditional peak season.
The national median sales price rose 5.8% from a year earlier to $419,300, an all-time high. This comes as no surprise, given the ongoing slump since 2022 when mortgage rates began to rise from pandemic-era lows. The average rate on a 30-year mortgage has remained around 7% this year, making it challenging for many prospective homebuyers to enter the market. Lawrence Yun, the NAR’s chief economist, expressed surprise at the lack of a recovery in the spring, stating, “I thought that we would actually see a recovery this spring — we are not seeing it.”
The decline in home sales is partly attributed to the “lock-in” effect, where homeowners who bought or refinanced more than two years ago are hesitant to sell, as they are reluctant to give up their fixed-rate mortgages below 3% or 4%. As of the end of last year, over 50% of homes with a mortgage had rates below 4%, and 87% had rates below 6%. This means that many homeowners are opting to stay put rather than risk losing their low mortgage rates. Additionally, the limited supply of homes for sale has been a constraining factor on the market. While inventory levels have been easing due to longer sales periods, the market remains challenging for first-time homebuyers, who accounted for 31% of all homes sold in May, down from 33% in April but up from 28% last year.
US Housing Market Struggles with Declining Sales and Rising Prices Amid High Mortgage Rates
Despite the challenges, some segments of the market are showing signs of life. Homebuyers who can afford to sidestep mortgage rates and pay cash for a home accounted for 28% of sales in May, up from 25% last year. Additionally, individual investors and homeowners buying a second home accounted for 16% of sales, up from 15% last year. As the Federal Reserve signals a potential cut in interest rates later this year, Yun maintains that the market will remain sluggish until rates ease.
The data suggests that the US housing market is still struggling to recover from the impact of rising mortgage rates and record-high prices. While some segments of the market are showing signs of life, the overall trend remains sluggish. As the Federal Reserve considers future interest rate changes, the housing market will likely continue to face challenges until mortgage rates ease.
