U.S. existing home sales fell for the third consecutive month in May, as record-high prices and rising mortgage rates deterred potential buyers. Despite an increase in housing inventory, affordability remains a significant issue, with many buyers sidelined due to the high costs and interest rates.
U.S. existing home sales dropped by 0.7% in May, marking the third consecutive month of decline. The seasonally adjusted annual rate fell to 4.11 million units, slightly above economists' forecast of 4.10 million units. Year-on-year, home resales decreased by 2.8%.
The median existing home price surged by 5.8% from a year earlier, reaching an all-time high of $419,300. The average rate on a 30-year fixed mortgage hit a six-month high of 7.22% in early May before slightly retreating to just below 7.0% by the end of the month.
Housing inventory increased by 6.7% to 1.28 million units in May, the highest level since August 2022. This represents an 18.5% increase from a year ago. The National Association of Realtors (NAR) noted that inventory levels in Texas and Florida surged by 40-60%, partly due to rising property insurance costs.
Sales dropped by 1.6% in the densely populated South, while remaining unchanged in the Midwest, Northeast, and West. The Midwest is considered the most affordable region, which may explain the stable sales figures.
Poor affordability continues to be a significant barrier for potential buyers. Entry-level homes, particularly those priced under $250,000, remain scarce. At the current sales pace, it would take 3.7 months to exhaust the existing inventory of homes, up from 3.1 months a year ago.
Despite the increase in supply, about 30% of homes were sold above the listing price, indicating that multiple offers are still common in some areas. Properties typically stayed on the market for 24 days in May, up from 18 days a year ago.
While the housing market faces challenges, the broader economy shows signs of resilience. The S&P Global U.S. Composite PMI Output Index, which tracks manufacturing and services sectors, rose to 54.6 in June, indicating expansion. Economists expect the Federal Reserve to begin cutting interest rates gradually in the second half of 2024.
The U.S. housing market is currently grappling with high prices and rising mortgage rates, which have led to a decline in home sales. However, the increase in housing inventory offers a glimmer of hope for improved affordability in the future.