Realtor.com; Getty Images (2)
The spring housing market is officially over, and home sales fizzled out in the last full month of the season.
Sales of existing homes shrank by 0.7% in May compared with April, according to a recent report from the National Association of Realtors®.
Sales also fell annually, dipping 2.8% from May 2023 to a seasonally adjusted annual rate of 4.11 million homes.
Yet low inventory might be the least of homebuyers’ hurdles as the summer market heats up. Median home prices skyrocketed 5.8% annually from $385,800 in May 2023 to $419,300—the highest home price ever recorded. May also marks the 11th month in a row of annual price increases.
“Home prices reaching new highs are creating a wider divide between those owning properties and those who wish to be first-time buyers,” said NAR Chief Economist Lawrence Yun in a statement. “The mortgage payment for a typical home today is more than double that of homes purchased before 2020.”
Stubborn mortgage rates continue to toggle above and below the 7% benchmark, averaging 6.87% for 30-year fixed loans in the week ending June 20, according to Freddie Mac.
Sluggish sales can be traced back to these high rates, which have many sellers “locked in” to their existing low mortgage rates and unwilling to trade them for a rate that could be double what they currently pay.
“The combination of high home prices and elevated mortgage rates has proved to be challenging for the housing market, weighing down sales activity,” Realtor.com® Chief Economist Danielle Hale said in a statement.
Who bought homes in May
High mortgage rates did not deter first-time homebuyers in May, who accounted for 31% of sales compared with 33% in April and 28% in May 2023.
Of the total home sales, 28% were all-cash buyers, the same percentage as last month’s. Individual investors or second-home buyers, a large percentage of cash buyers, bought 16% of existing homes in May, which matched the 16% seen in April and up from 15% in May 2023.
Only 2% of sales were foreclosures and short sales, a number that remained unchanged from last month and last year.
Where home sales are rising and falling the most
Sales slipped modestly from April to May in the South, yet remained exactly the same for the same period in the West, Northeast, and South. The Midwest was the only region that saw home sales rise year over year.
Sales declined by 1.6% in the South month over month, falling 5.1% from the prior year. The median price in the South was $374,300, up 3.6% from last year.
The Northeast saw sales slip 4% from May 2023. The median price was $479,200, up 9.2% from the prior year.
The existing-home sales in the West dropped 1.3% from the year prior. The median price reached $632,900, a 5.5% jump from May 2023.
In the Midwest, existing-home sales were unchanged from April to May but were up 1% from one year ago. The median price was $317,100, up 6.4% from May 2023.
“Eventually, more inventory will help boost home sales and tame home price gains in the upcoming months,” said Yun.
An opportunity for buyers
The total number of unsold existing homes increased by 6.7% from the previous month, reaching 1.28 million at the end of May. Based on the current monthly sales pace, this amount represents a 3.7-month supply of available homes.
“Increased housing supply spells good news for consumers who want to see more properties before making purchasing decisions,” said Yun.
Hale advises buyers looking to take advantage of the rise in housing stock to shop for homes in specific metros. Other homebuyers might want to take advantage of programs available to them to take the sting out of record-high home prices.
“A dip in market competitiveness could make it easier for veterans and military households hoping to take advantage of a VA mortgage loan, a benefit established 80 years ago on June 22,1 944, as part of the GI Bill,” says Hale. “VA loans enable military homebuyers by offering zero down payment requirements and favorable terms such as lower mortgage rates.”
Some of the most military-friendly markets are Des Moines, IA, Augusta, GA, and Columbia, SC.