Since real estate brokerage Redfin started taking records, fewer homes were available for sale in the United States in May 2023 than in any other month.
The number of homes for sale declined by 7.1 percent year-over-year in May 2023 on a seasonally adjusted basis to 1.4 million units, according to a June 21 Redfin press release. This is the first annual decline since April last year and the lowest level of homes for sale dating back to 2012. Compared to May 2019, before the pandemic hit the housing market, May 2023 sales numbers are lower by 38.6 percent. Redfin blames the shortage of homes on persistently high mortgage rates.
“Nearly every homeowner with a mortgage has an interest rate below 6 percent, meaning many are opting to stay put because selling and buying a new home would mean taking on a higher monthly mortgage payment.”
New listings of homes for sale fell 25.2 percent in May from a year back to the third lowest level on record.
According to a June 22 post by the National Association of Realtors (NAR), the lack of existing homes for sale in the market is forcing buyers to look for properties elsewhere.
NAR Chief Economist Lawrence Yun points out that “newly constructed homes are selling at a pace reminiscent of pre-pandemic times because of abundant inventory in that sector.”
In contrast, “existing-home sales activity is down sizably due to the current supply being roughly half of the level of 2019.”
High Home Prices
The housing shortage is keeping home prices elevated. In May, the median U.S. home sales price was $419,103, only slightly down from the record high of $432,311 hit a year back.
According to Redfin Chief Economist Daryl Fairweather, it is still too early to say whether price declines have “bottomed out” as he believes it could continue to fall.
“Prices may have room to fall because mortgage rates could still rise. The Federal Reserve just signaled that it is likely to continue raising interest rates this year,” he pointed out.
“That could further hamper homebuyer demand and cause home prices to fall in the near term, though the drops would be minimal. We’re unlikely to see double-digit price declines like we did during the 2008 housing crisis.”
Demand is edging up amid a shortage of homes as evidenced by rising mortgage loan applications. The Mortgage Bankers Association’s (MBA) Market Composite Index, a measure of mortgage loan application volume, rose by 0.5 percent for the week ending June 16 from a week earlier.
NAR Chief Economist Yun noted that mortgage rates, which continue to remain elevated, will “heavily influence the direction of home sales.”
For the week ending June 22, the 30-year fixed-rate mortgage rate averaged 6.67 percent, according to data from Freddie Mac, a level that it has been hovering around for a few weeks. “Relatively steady rates have led to several consecutive months of consistent home sales,” Yun said.
Affordability Issues
Though mortgage applications are rising, affordability remains a major challenge for many prospective homebuyers.
Data from NAR’s Housing Affordability Index (pdf) shows that the median price of an existing single-family home was $393,300 in April 2023, up from the $300,200 average price in 2020.
The qualifying income required to buy a median-priced existing single-family home has jumped from $49,680 in 2020 to $94,656 in April 2023. Meanwhile, mortgage payment as a percentage of income has jumped from 14.7 percent to 26 percent.
According to Redfin Chief Economist Fairweather, people thinking it’s a bad time to buy a home due to elevated mortgage rates should remember that when the rates eventually fall, numerous buyers will be waiting to enter the market.
“That could lead to more bidding wars since there aren’t enough homes for sale, and heightened competition could push up prices, offsetting some or all of the benefit of lower interest rates.”
