The existing home sales market is facing a major crisis, with sales reaching a 30-year low. In May, sales remained stagnant, dropping by 0.7% from April to a seasonally adjusted, annualized rate of 4.11 million units. This reflects a 2.8% decrease from the same period last year. Lawrence Yun, chief economist at the National Association of Realtors (NAR), expressed his disappointment by stating, “Home sales refuse to recover. I thought we would see a recovery this spring. We are not seeing it.”
One of the key issues contributing to the stagnant sales is the lack of inventory, although there was a notable increase in May. The inventory of homes for sale surged by 6.7% month-to-month and was 18.5% higher than in May last year. However, at the current sales pace, there is only a 3.7-month supply available. Despite the rising inventory, it is still insufficient given the existing demand. The median price of an existing home sold in May hit a record high of $419,300, marking a 5.8% year-over-year increase. This surge in prices comes at a time when mortgage rates are high and continue to affect affordability for potential buyers.
The real estate market is also witnessing segmentation based on price ranges. Homes priced below $250,000 experienced lower sales compared to a year ago, whereas sales of homes priced between $250,000 and $500,000 only saw a minimal increase of 1%. In contrast, sales of homes priced between $750,000 and $1 million surged by 13%, and sales of properties priced over $1 million spiked by nearly 23%. Cash transactions accounted for 28% of sales, indicating the influence of wealthier buyers in the market.
First-time buyers are making up 31% of sales, a slight increase from the previous year. Despite the high prices and limited inventory, two-thirds of homes go under contract in less than a month, signaling intense competition in the market. Redfin reports that well-priced homes in good condition are selling quickly, while others are lingering on the market, suggesting varying levels of demand and supply in different segments.
The real estate market is at a critical juncture, with challenges posed by high prices, low inventory, and rising mortgage rates. While an increase in inventory may provide some relief in the coming months, it is crucial to address the affordability issue to stimulate demand. The real estate industry must navigate these turbulent waters by adopting innovative strategies to attract buyers and maintain a healthy balance between supply and demand. Only through proactive measures and market interventions can the sector hope to recover and thrive in the post-pandemic era.