May Home Sales Remain Stagnant in Sluggish Spring Market

The National Association of Realtors reports that sales of pre-owned homes remained relatively stable in May compared to April.

There was a modest increase of 0.2% in the seasonally adjusted and annualized pace of 4.30 million units. However, sales were 20.4% lower compared to the same period last year.

The slow sales pace can be attributed to high prices, elevated mortgage rates, and a significant shortage of available homes for sale during the spring season.

At the end of May, there were only 1.08 million homes on the market, which is 6.1% lower than in May of the previous year. This represents a three-month supply at the current sales pace, while a balanced market typically requires six months’ supply. Prior to the Covid pandemic, the market had nearly double the number of homes available for sale.

“Newly constructed homes are selling at a rate similar to pre-pandemic times due to the abundant inventory in that sector,” said Lawrence Yun, the chief economist for the NAR. “However, existing-home sales activity is significantly lower as the current supply is roughly half the level of 2019.”

The May sales figures are based on closings, indicating homes that likely went under contract in March and April. Mortgage rates were volatile during this period, with the average contract interest rate on a popular 30-year fixed mortgage initially surpassing 7% in March before dropping temporarily close to 6% and then rising again, averaging around 6.5% in April.

The strong demand in the market has prevented a significant decline in home prices, despite the slower sales pace. The median price of an existing home sold in May was $396,100, a 3.1% decrease compared to May 2022. Price fluctuations varied by region, with increases in the Northeast and Midwest and decreases in the South and West.

It is important to note that this median price drop is influenced by the type of homes that are selling the most.

Currently, lower-priced homes are experiencing the most activity. While sales of homes in all price ranges have declined compared to the previous year, homes priced between $250,000 and $500,000 have seen a 12% decrease, while homes priced between $750,000 and $1 million have experienced a 21% decline. Other price indexes that measure repeat sales of similar homes indicate rising prices once again.

The competitive market is a result of the strong demand and limited supply. Approximately one-third of properties were sold above their list price. In May, properties remained on the market for an average of 18 days, compared to 22 days in April and 16 days in May 2022. Nearly three-quarters of the homes sold in May were on the market for less than a month.

“With fewer homeowners expected to sell in 2023, buyers will face challenges,” said Danielle Hale, the chief economist for Realtor.com. “Our revised 2023 outlook anticipates some positive developments, such as a gradual decline in mortgage rates starting midyear and a continued stabilization of high housing costs.”

The beginning of the summer housing season is mirroring the spring, with slower sales due to a lack of supply. According to a separate report from Redfin, a real estate brokerage, pending home sales have declined by 16% compared to the previous year during the four weeks ending on June 18. Pending sales are based on signed contracts, not closings.

Despite the decline in sales, Redfin’s measure of requests for home tours and other early-stage buying services has increased by 11% year over year. The market continues to face a shortage of available homes, as new listings have decreased by 24% compared to last year, and the total number of homes for sale has dropped by 8%, the largest decline in over a year.