A sign is posted in front of a home for sale in San Francisco, California on June 9, 2023.
Justin Sullivan | Getty Images
According to the National Association of Realtors, home sales were essentially flat in May compared to April.
They rose 0.2% to a seasonally adjusted annual rate of 4.30 million units. Compared to the previous year, however, sales were down by 20.4%.
The slow pace of spring sales is a combination of still high prices, elevated mortgage rates and a critical shortage of homes for sale.
At the end of May there were just 1.08 million apartments on the market. That’s 6.1% down from last May’s supply. At the current pace of sales, that’s equivalent to a three-month supply. Six months is considered a balanced market. Before the corona pandemic, there were almost twice as many houses on the market.
“Newly built homes are selling at a pace reminiscent of pre-pandemic times due to ample inventory in the sector,” Lawrence Yun, NAR’s chief economist, said in a press release. “However, sales activity for existing properties has declined significantly, as the current supply is around half what it was in 2019.”
May sales are based on closures – meaning homes likely signed in March and April. Mortgage rates have been volatile during this period. The average contract rate on the popular 30-year fixed-rate mortgage was above 7% at the start of March, then briefly fell sharply to nearly 6%, but then rose again to hover around 6.5% for most of April.
Strong demand has kept home prices low as they would normally fall more given the slow pace of sales. The median price of an existing home sold in May was $396,100, down 3.1% from May 2022. Prices rose in the Northeast and Midwest but fell in the South and West.
This is the sharpest drop in prices in just over a decade, but it’s an average, pushing the price toward the top-selling home type.
Right now, most of the activity is in lower-priced homes. While sales of homes in all price ranges are now lower year-over-year, sales of homes priced between $250,000 and $500,000 are down 12%. But sales of homes priced between $750,000 and $1 million fell 21%. Other price indices, which measure repeat sales of similar homes, show prices are rising again.
The attraction between strong demand and tight supply keeps the market competitive. Almost a third of the properties sold are above the list price. Homes stayed on the market for 18 days in May, up from 22 days in April, but more than 16 days in May 2022. Almost three quarters of the homes sold in May were on the market for less than a month.
“With fewer homeowners becoming sellers in 2023, buyers are in for a tough road ahead,” said Danielle Hale, Realtor.com’s chief economist. “Our revised forecast for 2023 assumes that there will be some positive effects, namely a gradual decline in mortgage rates from mid-year and continued weakness in house prices, which will lead to the stabilization of high housing costs.”
The start of the summer property season is similar to spring, with slower sales due to the lack of supply. In a separate report from Redfin, a real estate brokerage firm, pending home sales fell 16% year over year in the four weeks ended June 18. Pending sales are based on signed contracts, not deals.
Despite slower sales, Redfin’s measurement of requests for tours and other early-stage buying services is up 11% year over year. There are simply more buyers than homes for sale as the number of new homes for sale is down 24% year-on-year and the total number of homes for sale is down 8%, the sharpest drop in over a year.