Sales of previously owned U.S. homes saw a slight increase in May, according to the National Association of Realtors (NAR).
The rise, which amounted to 0.8% from April, brought the seasonally adjusted annual sales rate to 4.03 million units.
Despite this fractional increase, sales during this period remained the slowest for May since 2009, reflecting ongoing challenges in the housing market.
Sales also experienced a year-over-year decline, falling by 0.7% compared to May of the previous year.
Interestingly, this latest figure exceeded the expectations of economists, who had anticipated a sales pace of around 3.95 million units, as reported by FactSet.
National home prices continued to climb, marking the 23rd consecutive month of annual price increases.
The median sales price for homes rose by 1.3% year-over-year in May, reaching an all-time high of $422,800.
However, this represents the slowest rate of annual price growth since June 2023, indicating a potential shift in the market dynamics.
Lawrence Yun, NAR’s chief economist, attributed the subdued sales figures to persistently high mortgage rates.
He noted that lower interest rates could entice more buyers and sellers back into the housing market.
The housing market has faced a downturn since early 2022 when mortgage rates began climbing from historically low levels seen during the pandemic.
Last year saw home sales fall to their lowest levels in nearly three decades, highlighting the challenges faced by prospective buyers.
The average rate for a 30-year mortgage has hovered near its highest level for the year, just above 7%, a peak reached in mid-January, according to Freddie Mac.
For homes sold in May, it is likely that contracts were signed in April and May when mortgage rates fluctuated between 6.62% and 6.89%.
Last week, the average stood at 6.81%, contributing to higher monthly payments for borrowers.
Many prospective homebuyers now face significant affordability hurdles due to high mortgage rates, which can escalate overall monthly costs by hundreds of dollars.
Furthermore, home prices have surged dramatically over the last few years, leaving many looking to buy without a clear path to homeownership.
Since May 2019, the median home sales price has increased by 52%, whereas hourly wage growth has only risen by 30% within the same period, according to Yun.
As home prices continue to rise, potential buyers find themselves needing to save substantially for down payments.
Currently, a buyer would require an annual income of $91,960 to make a typical home affordable with a 20% down payment, nearly 87% higher than the figure from May 2019.
These affordability challenges are particularly limiting for first-time buyers, who only accounted for 30% of home sales in May.
Historically, this group has represented approximately 40% of home sales, showcasing a notable decline.
Looking ahead, economists predict that mortgage rates will likely remain stable in the upcoming months, with average forecasts suggesting rates will persist in the 6% to 7% range throughout the year.
Homebuyers who are in a position to proceed with purchases at these mortgage rates benefit from a broader selection of available properties.
As of the end of May, there were 1.54 million unsold homes, representing a 6.2% jump from April and a significant 20.3% increase from the previous year.
Although this growth in inventory signals a more favorable environment for buyers, it still falls short of the approximately 2 million homes typically available for sale pre-pandemic.
The inventory figures correspond to a 4.6-month supply based on the current sales pace, slightly up from 4.4 months in April and from 3.8 months in May last year.
Typically, a 5 to 6-month supply indicates a balanced market between buyers and sellers, suggesting that the market is beginning to shift.
An extended average time on the market for homes, now at 27 days in May compared to 24 days a year prior, also signals a cooling trend.
As more homes enter the market and the pool of capable buyers shrinks, it may lead to increased pressure on sellers to re-evaluate their pricing or provide buyer incentives.
Last month, 28% of homes sold for above their listed price, a slight decrease from 30% a year earlier, illustrating the changing market dynamics.
Homebuilders are also responding to market conditions by reducing prices and offering incentives, including mortgage rate buydowns, to attract buyers in a time of ample supply of new homes.
Danielle Hale, chief economist at Realtor.com, emphasized the transition from a seller-friendly market to one that is more balanced.
This trend marks a notable shift towards a more buyer-friendly environment, which has not been seen in several years.
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