US pre-occupied home sales slowed for the fourth consecutive month as rising mortgage rates and record prices dampened home hunters.
The National Association of Realtors said Tuesday that existing home sales fell 3.4% last month from April to a seasonally adjusted annual rate of $5.41 million.
The annual sales pace was higher than economists had expected, according to FactSet. Sales fell 8.6% compared to May last year.
After jumping to an annual rate of 6.49 million in January, sales fell to the slowest pace since June 2020, near the start of the pandemic, when it was operating at an annual rate of 4.77 million homes.
Even as home sales slowed, home prices continued to rise in May. The national median home price jumped 14.8% in May from a year earlier to $407,600. This is an all-time high, NAR said, according to data going back to 1999.
The housing market, an important part of the economy, is slowing as homebuyers face sharply higher mortgage costs than they did a year ago in the wake of the rapid rise in mortgage rates.
Average long-term US mortgage rates made their biggest one-week jump in 35 years as the Federal Reserve last week raised its key interest rate by three-quarters of a point in an effort to combat the worst inflation in 40 years.
The average 30-year mortgage rate rose to 5.78% last week, its highest rate since November 2008 during the housing crisis, according to mortgage buyer Freddie Mac.
The rise in mortgage rates follows a sharp rise in 10-year Treasury yields, reflecting expectations of higher interest rates in general. The Federal Reserve has indicated its intention to continue raising interest rates in the short term as it tries to calm the US economy without causing a recession.
The weekly average over the 30-year average has been hovering just above 5% for most of May, so recent price increases have not been reflected in the home sales data.
“Mortgage rates today are knocking on the 6% door,” said Lawrence Yun, chief economist at NAR. “Under these circumstances, I expect further declines in home sales.”
Some real estate trends favored buyers last month. As is typical for this time of year, the number of homes on the market in May increased from the previous month. There were 1.16 million properties on sale at the end of May, up 12.6% from April, but down 4.1% from April last year.
However, at the current sales pace, the level of properties for sale is up to 2.6 months, NAR reported. That’s up from 2.2 months in April, and 2.5 months a year ago. This is still less than the 4 month supply which reflects a more balanced market between buyers and sellers.
Yoon expects the inventory of homes for sale to be above last year’s levels by the fall.
The downturn in home sales this year has led some economists to revise the housing market forecast for 2022. Realtor.com now expects US home sales to fall 6.7% from last year. That would make 2022 the second best year for home sales since 2007 after 2021, according to Danielle Hill, chief economist at Realtor.com.
However, even with rising mortgage rates putting pressure on affordability, the homes that were sold did not stay on the market for long. On average, homes were sold within just 16 days of entering the market last month, the fastest sales pace NAR has tracked. It was 17 days in April.
With inflation at four-decade highs, rising mortgage rates, rising home prices and a tight supply of homes for sale, home ownership is becoming less and less achievable, especially for first-time buyers.
NAR said first-time buyers accounted for 27% of transactions, down from 28% the previous month and 31% in May last year.
Real estate investors and other buyers who are able to purchase a home with cash only, and avoid the need to rely on financing, made up 25% of total sales last month, down from 26% in April, the agency said.