Housing Tries to Find a ‘Sweet Spot’ Amidst Higher Pricing and Interest Rates

Housing affordability paired with higher interest rates have everything to do with it. According to the National Association of Realtors (NAR), existing-home sales dropped for the fifth straight month in June. Three out of four major U.S. regions experienced month-over-month sales declines and one region held steady, while year-over-year sales sank in all four regions.

Total existing-home sales (completed transactions that include single-family homes, townhomes, condominiums, and co-ops) dipped 5.4% from May to a seasonally adjusted annual rate of 5.12 million in June. Year-over-year, sales fell 14.2% (5.97 million in June 2021).

NAR Chief Economist Lawrence Yun explains, ”Falling housing affordability continues to take a toll on potential home buyers.” He continues, “Both mortgage rates and home prices have risen too sharply in a short span of time” .

Inventory, however, is creeping up at last. Total housing inventory registered at the end of June was 1,260,000 units, an increase of 9.6% from May and a 2.4% rise from the previous year (1.23 million). Unsold inventory sits at a 3.0-month supply at the current sales pace, up from 2.6 months in May and 2.5 months in June 2021, according to the NAR.

Rising home prices don’t help, however. The median existing-home price3 for all housing types in June was $416,000, up 13.4% from June 2021 ($366,900), as prices increased in all regions. This marks 124 consecutive months of year-over-year increases, the longest-running streak on record. “Finally, there are more homes on the market,” Yun added. “Interestingly though, the record-low pace of days on market implies a fuzzier picture on home prices. Homes priced right are selling very quickly, but homes priced too high are deterring prospective buyers.”

First-time buyers were not deterred, accounting for 30% of sales in June, up from 27% in May, and down from 31% in June 2021. All-cash sales accounted for 25% of transactions in June, the same share as in May and up from 23% in June 2021. And individual investors or second-home buyers, who make up many cash sales, purchased 16% of homes in June, unchanged from May and a slight increase from 14% in June 2021.

If you’re thinking this is anything like the recession housing-wise, think again. Distressed sales – foreclosures and short sales – represented less than 1% of sales in June, essentially unchanged from May 2022 and June 2021. “If consumer price inflation continues to rise, then mortgage rates will move higher,” Yun said. “Rates will stabilize only when signs of peak inflation appear. If inflation is contained, then mortgage rates may even decline somewhat.”

During the month of June, the largest year-over-year median list price growth occurred in Miami (+40.1%), Orlando (+30.6%) and Nashville (+30.6%). Austin reported the highest increase in the share of homes that had their prices reduced compared to last year (+24.7 percentage points), followed by Phoenix (+22.2 percentage points) and Las Vegas (+20.1 percentage points).

“Owning a home can create a path to financial freedom and lead to long-term wealth gains that families can pass on to future generations,” said NAR President Leslie Rouda Smith, a REALTOR® from Plano, Texas, and a broker associate at Dave Perry-Miller Real Estate in Dallas. “We will remain steadfast in our efforts to protect homeowner rights, and our members will continue to deliver valuable expertise to consumers throughout the home buying process.”

NAR/Realtor, TBWS