Existing home sales fell for the fourth-straight month in May in the latest sign rising rates have stunted sales in the housing market—but prices still hit a record high above $400,000 in May as low levels of housing inventory and supply chain constraints tack on to affordability challenges for prospective homebuyers.
Existing home sales slid 3.4% from April to a seasonally adjusted annual rate of 5.4 million in May, compared to 5.9 million one year ago, according to data released Tuesday by the National Association of Realtors.
Meanwhile, the median existing-home price was a record $407,600, up nearly 15% from a year ago as prices increased across all regions nationwide—marking 123 consecutive months of year-over-year price gains for the longest streak of increases on record, the NAR said.
The number of homes sold has “essentially returned” to pre-pandemic levels seen in 2019 “after two years of gangbuster performance,” NAR Chief Economist Lawrence Yun said in a statement Tuesday, noting further sales declines should be expected in the upcoming months as rising mortgage rates add to affordability challenges in the housing market.
With the Federal Reserve hiking interest rates three times this year, mortgage rates have roughly doubled to 6% from a near-record-low of 3% at the end of last year—curbing home buying demand and driving up the cost of homebuying.
According to a Tuesday report from real estate brokerage Redfin, a homebuyer on a $2,500 monthly budget has lost nearly $120,000 in spending power since the end of last year due to rising rates, with the monthly payment on the average mortgage climbing more than $500 over the same period.
“The housing market is adjusting rapidly and painfully to the surge in mortgage rates,” Pantheon Macro Chief Economist Ian Shepherdson said in emailed comments after the report, noting housing inventory—still at historically low levels—continues to drive prices higher despite the sales decline.
Less than 46% of homes for sale nationwide are affordable on a $2,500 monthly budget at a 6% interest rate, down from nearly 62% that would be affordable if rates were still at 3%, Redfin notes.
“Higher mortgage rates are necessary to cool down the red-hot housing market, but they’re also putting buyers in a tough spot,” Redfin Chief Economist Daryl Fairweather said in a statement. “The increase in monthly payments means many house hunters now need to consider smaller homes—perhaps farther from their ideal neighborhood—or stick to renting if they’re priced out of the market altogether.”
Historically high savings rates and government stimulus measures helped ignite a home buying frenzy during the pandemic—but signs of a slowdown have quickly emerged as the Fed embarks on its most aggressive interest-rate-hiking cycle in two decades. The number of housing starts, or new houses on which construction started, plunged 14.4% to about 1.5 million last month from 1.8 million in April—sharply below economic projections calling for nearly 1.7 million starts, and new home sales in April collapsed nearly 17% from March.
What To Watch For
Data on new home sales in May is slated for release on Friday. Economist project about 600,000 new homes were sold last month, up after a steep decline to 591,000 in April.