Existing Home Sales Slow Down Amidst Rising Inventory and Elevated Prices
The housing market continues to experience a shift, with existing home sales declining for the second consecutive month. According to the National Association of Realtors (NAR), sales plummeted by 5.4% in June compared to May, reaching a seasonally adjusted annual rate of 3.89 million units. This marks the slowest sales pace since December, reflecting the impact of escalating mortgage rates on buyer activity.
Key Takeaways:
- Slowing Sales: Sales have dipped for two consecutive months, suggesting a cooling market.
- Shifting Power Dynamics: The market is transitioning from a seller’s market to a buyer’s market, with sellers facing longer wait times and fewer offers.
- Rising Inventory: The number of homes available for sale has surged by 23.4% year-over-year, the highest level since May 2020.
- Elevated Prices: Despite increased inventory, the median home price continues to climb, reaching an all-time high of $426,900, a 4.1% increase from June 2022.
- Price Discrepancies: While the national median price is at a record high, the lower end of the market is seeing a surge in inventory, impacting the median listing price.
- Investor Activity: Investors are cautiously pulling back from the market, accounting for 16% of sales compared to 18% a year ago.
Delving Deeper into the Cooling Market
The Impact of Rising Mortgage Rates
The recent decline in sales can be attributed to the rapid increase in mortgage rates. In April and May, the average rate on the 30-year fixed mortgage surged above 7%, deterring many prospective buyers from entering the market. While rates have pulled back slightly since then to the high 6% range, the impact on affordability remains significant.
"We’re seeing a slow shift from a seller’s market to a buyer’s market," noted Lawrence Yun, chief economist for the NAR. "Homes are sitting on the market a bit longer, and sellers are receiving fewer offers. More buyers are insisting on home inspections and appraisals, and inventory is definitively rising on a national basis."
The Growing Inventory
The surge in inventory, reaching 1.32 million units, is a direct result of homes lingering on the market for longer periods. While this increase marks a positive development for buyers, it’s crucial to note that the current supply of 4.1 months remains below the 6-month supply considered a balanced market.
"The median listing price is being held down by an influx in smaller and lower-priced listings," explained Danielle Hale, chief economist for Realtor.com. "In fact, the number of for-sale homes in the $200k to $350k price bucket surged by 50% compared to a year ago."
Price Disparities
While the national median home price has reached an all-time high, a closer examination reveals significant price disparities between different market segments. The upper end of the market, particularly homes priced over $1 million, has experienced continued growth in sales. In stark contrast, the lower end of the market, where homes are priced $250,000 or less, has witnessed the most significant decline in sales.
This dichotomy can be attributed to various factors, including the affordability constraints arising from rising mortgage rates, which disproportionately affect lower-income buyers.
Looking Ahead: A Shift in Market Dynamics
The ongoing increase in inventory coupled with decreased buyer activity suggests a potential shift toward a more balanced market. While prices are currently elevated, the increased supply could lead to either an increase in sales or a stabilization of prices, ultimately benefiting buyers.
"Assuming more inventory continues to increase, two things would happen," elaborated Yun. "Either home sales rise, or, if the prices do not rise, the prices would buckle down."
The future trajectory of the housing market hinges on several key factors, including the future direction of mortgage rates, economic conditions, and the availability of affordable housing options. As the market evolves, buyers and sellers alike will need to navigate these changing dynamics to make informed decisions.
