In May, sales of existing homes declined and there are more drops in the future

Jul 3, 2022

According to The National Association of Realtors the May sales of existing houses fell by 3.4% to a seasonal adjusted annualized rate of 5.41million units.

Sales were 8.6% higher than in May 2021. Sales for April were also slightly revised.

This reading is the lowest since June 2020 when it was taken during the Covid pandemic. Adjusting for this, it is the lowest reading since Jan 2020.

This reading is based solely on closings for the month. These are likely contracts signed in March and/or April. The average 30-year fixed mortgage rate rose from 4% to 5.5% between those dates. According to Mortgage News Daily, it is currently at 6%. A combination of high rates and rapid home price appreciation combined with low supply has given affordability a triple punch.

Lawrence Yun chief economist at National Association of Realtors said, "I do anticipate another decline in home sales." "The data doesn't yet reflect fully the effects of higher mortgage rates."

End May saw 1.16 million homes available for sale. That's an increase of 12.6% from month to month, but still 4.1% less than May 2021. The current sales pace means that there is a 2.6 months supply.

Low supply continued to push home prices higher. The median price of a house sold in May was $407,600, an increase of 14.8% from May 2021. It is the highest record price ever since Realtors began keeping track of it in the 1980s.

Supply is leanest on the lower end of the market, which is likely why activity there continues to be weaker than on the higher end. The number of homes sold between $100,000 and $250,000 fell 27% compared to a year ago. Sales of homes priced between $750,000 and $1 million were up 26%. Sales of homes worth more than $1million rose 22% year over the previous year.

Homes are selling quickly. Houses stayed on the market an average of just 16 days, the lowest on record for the Realtors. All-cash sales were still elevated at 25% of all sales. The 16% share of transactions that were conducted by investors was slightly lower than April but still higher than a year ago.

The number of first-time purchasers accounted for just 27%, compared to 31% last year. Affordability is clearly hitting them hardest, as rents are rising as well.

Danielle Hale, chief economist of Realtor.com, stated that "higher short-term rates at the Fed are helping drive a much needed housing reset - real estate refresh." "While the rebalancing process is important, it makes it more difficult to navigate the housing market for both buyers and sellers. The expectations and changing conditions are increasing rapidly and making it harder for them to do so.

Realtor.com updated its forecast for 2022 home sales. It now projects fewer than last year.

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