Existing home sales in May fell 3.4% to a seasonally adjusted annualized rate of 5.41 million units, according to the National Association of Realtors.
Sales were 8.6% lower than in May 2021. April sales were also revised down slightly.
This is the weakest reading since June 2020, which was during the first months of the Covid pandemic. Adjusted for this, it is the lowest since January 2020.
This reading is based on closings during the month, thus representing contracts likely signed in March and April. During this period, the average 30-year fixed mortgage rate rose from about 4% to 5.5%. It is currently around 6%, according to Mortgage News Daily. Rising rates, along with rapidly appreciating home prices and persistently weak supply, have given affordability a triple boost.
“I expect home sales to decline further,” said Lawrence Yun, chief economist at the National Association of Realtors. “The impact of rising mortgage rates is not yet fully reflected in the data.”
There were 1.16 million homes for sale at the end of May, up 12.6% month over month, but still down 4.1% from May 2021. At the current rate of sales, this represents a supply of 2.6 months.
Weak supply continued to drive up home prices. The median price for a home sold in May was $407,600, an increase of 14.8% from May 2021. This is the highest price on record since real estate agents began listing it. follow in the late 1980s.
Supply is weakest in the lower end of the market, which is likely why activity there continues to be weaker than in the upper end. Sales of homes priced between $100,000 and $250,000 are down 27% from a year ago. Sales of homes between $750,000 and $1 million increased by 26%. Sales of homes priced over $1 million jumped 22% year over year.
Homes are selling fast, however. Homes stayed on the market an average of just 16 days, the lowest on record for real estate agents. Cash sales were still high at 25% of all sales. Investors accounted for 16% of all transactions, down slightly from April and a year ago.
First-time buyers accounted for just 27% of all transactions, down from 31% a year ago. Affordability is clearly hitting them the hardest, as rents are also rising.
“The Fed’s short-term rate hike is helping drive a much-needed housing reset — a real estate refresh,” wrote Danielle Hale, chief economist at Realtor.com. “While the rebalancing is necessary, it presents the challenge of navigating the housing market for both sellers and buyers, as expectations and conditions adjust quickly.”
Realtor.com recently updated its forecast for home sales in 2022, now projecting less this year than last.