Housing bubble problems: jumps in supply, declines in sales, average price skew up due to shift in mix as bottom dips below $500,000, amid mortgage rates

CALIFORNIA SPECIAL: Waiting for sales to collapse by 30%, prices begin to “moderate,” and San Francisco apartment prices drop year after year.

Written by Wolf Richter for WOLF STREET.

Sales that closed in May for formerly owned single-family homes, condos, co-ops and townhouses were down 3.4% from April, based on a seasonally adjusted annual sales rate, and 8.6% from a year ago, the Realtors Association reported today.

Single-family home sales alone fell 7.7% year over year. Sales of apartments and co-ops fell 15.3% year over year.

May was the tenth consecutive month of year-over-year declines. The old saw no stock to sell was no longer an excuse because supply jumped 12.6% in May – so sales fell sharply due to a sharp rise in supply (data via YCharts):

“Further sales declines should be expected in the coming months given housing affordability challenges from the sharp rise in mortgage rates this year,” the NAR report said.

Seasonally adjusted annual sales in May fell to 5.41 million homes, the lowest since sales closing rates (data via YCharts):

Inventory for sale and supply leap.

The number of homes for sale in May jumped 12.6% from April, or 113,000 homes, after jumping 100,000 homes in April to 1.16 million, the highest level since November.

The supply of homes for sale jumped to 2.6 months, from 2.2 months in April, and from 2.5 months in May last year, the first year-over-year increase since the shutdown. This is a significant change from the 1.6-month January low (data via YCharts).

Sales by region.

Percentage change in seasonally adjusted annual rate of total home sales in May from April, and on an annual basis (YoY):

  • Northeast: +1.5% from April, -9.3% annually.
  • Midwest: -5.3% from April, -7.5% year over year.
  • South: -2.8% from April, -8.4% year-on-year.
  • West: -5.3% of April, -10.0% annually.

In California, closed sales fell and pending sales collapsed.

According to the California Association of Realtors (CAR), sales that closed in May for homes fell 15.2% in May year over year. Apartment sales fell 12.3%. These are closed sales.

The CAR report noted that pending sales – an indicator of closed sales in the following month – collapsed 30.6% in May, “likely due to eroding affordability, higher mortgage rates and home prices, and increased recession risks.”

Holy mortgage rates.

The average 30-year fixed-rate mortgage rose more than 6% last week for the first time since 2008, according to a daily gauge from Mortgage News Daily. According to Freddie Mac’s latest reading last week, the average mortgage rate rose to 5.78%.

These mortgage rates are so named because “holy lord” is what people say when they look at mortgage payments for the ridiculously inflated price of the home they want to buy.

But sales that closed in May are based on mortgage rates for the previous month or two, when they were much lower. As of mid-April, mortgage rates were in the 4% to 5% range. In May, mortgage rates were just above 5%.

It’s June, when the rally took off with renewed vigor, and we haven’t seen much housing data in June yet, except that Manhattan luxury sales are down 70% year-over-year in the week to June 19, but that’s mostly due to heavy selling in the market. stock.

Closed sales in May are based on deals largely negotiated in April, with mortgage rates from April and earlier, when those buyers applied for mortgages and got locks in mortgage rates that are good for a set period of time. The green box shows the mortgage rates roughly applied to home purchases that closed in May, around 4% to 5%.

The average price was pushed up due to a shift in the mix to higher quality sales.

In California: The median price rose to $899,000, up 9.9% year over year, according to the California Association of Realtors. But the average price is sensitive to changes in that mix, and according to the American Automobile Association, this price increase in the state “can be largely attributable to the sales mix, with the high-end market continuing to outperform more affordable market segments.”

The change in the mix is ​​seen in the share of $1 million homes, which jumped to a record share of 35.3%, while the share of homes under $500,000 hit an all-time low.

“House prices may be stabilizing however, as the monthly price gain appears to be tapering off,” CAR said. This is already happening in San Francisco.

in San FranciscoThe median price of apartments decreased 0.3% year-over-year. The median price of single-family homes in San Francisco rose 6.1%, the second-lowest gain for California’s large counties, behind Contra Costa (East Bay), where the median home price rose only 1.0% year over year.

In the United States from A: The median price rose to $407,600, up 14.8% from a year ago, according to NAR. And here too, as we’ll see in a bit, there was a big shift to the higher end (data via YCharts):

The average price is skewed by changes in the mix.

My favorite illustration: To get the average price in a market where 9 homes were sold, list them by price from highest to lowest, and the price of the fifth house from the top or the fifth from the bottom (same house) is the middle price = median price.

But if the two cheapest houses were not sold, and if the remaining seven were sold, the middle would now be the fourth house, or the fourth house. This change in the mix skews the average price scale, even though actual home prices remain unchanged:

This change in the mix is ​​what happened in the US too.

Home sales under $500,000 fell while sales rose above $500,000 year-over-year, and these dramatic changes shifted the average price upward, according to data from NAR:

Investors’ share of sales and all cash sales decreased, but remained in the same range.

Individual investors or second home buyers bought 16% of homes in May, down from 17% in April, 18% in March, 19% in February and 22% in January, according to NAR.

“All cash” sales, which include many investors and second home buyers, fell to 25% in May, from 26% in April, but are up from 23% a year ago.

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