Home sales fell to one of the lowest levels on record in May as high prices, elevated mortgage rates, and a housing shortage continue to keep buyers on the sidelines.
According to data published by Redfin, there have only been two months in the past decade with fewer home sales: when mortgage rates jumped to a 23-year high in October 2023 and in May 2020, during the early days of the pandemic.
“Buyers today are facing many of the realities of a hot market even though few homes are changing hands,” Redfin senior economist Elijah de la Campa said in a Redfin press release.
What the Data Says
Home sales were down 1.7% on a seasonally adjusted basis in May compared to the month before and fell 2.9% year over year, while the median sale price rose 5.1% year over year to a record $439,716.
Meanwhile, the average 30-year-fixed mortgage rate hit 7.06% in May. That’s an increase from 6.43% a year ago and more than double the all-time low of 2.68% during the pandemic.
While prices have jumped, many sellers are being forced to lower their list price, as fewer buyers are incentivized to buy in a market with such high mortgage rates, and homes are staying on the market for longer.
Around 19% of homes in May cut their price, compared to 13.2% from a year earlier, with the typical home for sale spending 32 days on the market. That’s the highest level for any May since 2020, but similar to the length of time homes were on the market a year ago. The price drop was mostly seen in areas where housing supply has been increasing, such as in Florida and Texas.
The number of homes for sale has risen slightly, although 25% below pre-pandemic levels. New listings were up slightly compared to the month prior, rising 0.3%, but have risen significantly compared to last year, jumping 8.8%. Active listings (which includes homes that aren’t selling) rose 0.4% from April and jumped a whopping 11.1% from the year before.
What Does This Data Mean for Real Estate Investors?
The real estate market has been in a strange place for a while. More homes are staying on the market for longer in some areas, largely due to tepid interest from buyers, who are hesitant to buy when rates are high.
Meanwhile, as has been the case for a while, some homebuyers are reluctant to list their homes and give up fixed low rates, which are sometimes three points lower than today’s rates. This has contributed to a shortage of homes on the market, with a lag in homebuilding and baby boomers deciding to stay put also contributing to the current housing shortage. Mixed with high home prices, it’s created a stagnant housing market.
“Sales are sluggish because high homebuying costs are making both house hunters and prospective sellers skittish,” de la Campa said in the Redfin press release. “And with so few homes for sale, buyers in some markets are getting into bidding wars, which is helping push home prices to record highs.”
Still, if mortgage rates start to tick down, sales could pick up. While inflation is down, the Federal Reserve says it’s likely to keep rates as is until September. When a rate cut does come, the Fed is expected to stay slow and steady, which means rates are likely to follow at a similar pace.
The Bottom Line
Although home prices are still at record highs, a decrease in home sales means it’s no longer a seller’s market. In some areas of the country, buyers have more leverage. But a rise in interest rates means even those buyers are hesitating.
With the Fed expected to keep rates steady until the fall, the real estate market could stay stagnant through the summer, which means real estate investors may need to be patient for a little while longer.
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
