Written by Jacob Peterson.

The real estate market is facing a curious paradox: despite the sky-high prices, home sales have hit a 30-year low. The National Association of Realtors (NAR) reports that sales of previously owned homes dipped 0.7% from April to May, reaching an annualized rate of 4.11 million units. This represents a 2.8% drop from the same month last year.

The current sales figures reflect contracts likely signed in March and April when mortgage rates experienced a significant uptick. The average rate on the popular 30-year fixed loan began April just below 7%, climbed to over 7.5% mid-month, and then slightly retreated by May, settling around 7%.

“Home sales refuse to recover,” lamented Lawrence Yun, NAR’s chief economist. “I thought we would see a recovery this spring. We are not seeing it.”

In all regions except the South, where sales fell 1.6%, the market has remained stagnant month-to-month. However, the most significant change in May was a 6.7% month-to-month increase in the inventory of homes for sale, marking an 18.5% rise from May last year. With the current sales pace, there’s now a 3.7-month supply of homes. Despite this inventory increase, it’s still insufficient to meet the demographic and demand pressures.

Yun remains optimistic, stating, “Eventually, more inventory will help boost home sales and tame home price gains in the upcoming months. Increased housing supply spells good news for consumers who want to see more properties before making purchasing decisions.”

Record-High Home Prices Continue to Climb

Despite the sales slump, demand continues to push home prices to new heights. The median price of an existing home sold in May hit a record $419,300, up 5.8% from the previous year. This increase is the most substantial since October 2022, with prices rising in all regions.

The Realtors highlighted that today’s typical mortgage payment is more than double what it was five years ago. This surge is not just due to higher rates but also because home prices are over 50% higher than they were five years ago. The median price is skewing higher, partially due to more high-end homes being sold.

Sales of homes priced below $250,000 were down compared to a year ago, while those priced between $250,000 and $500,000 saw a slight 1% increase. Homes priced between $750,000 and $1 million rose by 13%, and those over $1 million surged nearly 23%.

Cash purchases remain significant, accounting for 28% of sales. First-time buyers are still a presence, making up 31% of sales, up from 28% last year. Despite high prices, competition remains fierce, with two-thirds of homes going under contract in less than a month. Redfin, a real estate brokerage, notes that while some listings are becoming stale, well-priced homes that require little work sell quickly, leaving others on the market longer.

Our Take

The current real estate landscape is troubling. The sharp rise in home prices, combined with high mortgage rates, is creating a barrier for many potential buyers. The increase in inventory is a hopeful sign, but it may not be enough to offset the affordability issues plaguing the market.

For many Americans, the dream of homeownership is becoming increasingly unattainable. The middle class, in particular, is feeling the squeeze as they struggle to compete with cash buyers and investors driving prices up. This situation exacerbates the wealth gap and limits social mobility.

Ultimately, this market scenario spells bad news for the public. The disparity between wages and home prices is widening, and without significant changes, we may see a generation of renters with little hope of buying a home. Policymakers need to address these issues by encouraging more affordable housing development and exploring ways to stabilize mortgage rates.