In May, the U.S. housing market saw a slight increase in the sale of pre-owned homes, despite ongoing challenges from high mortgage rates and elevated home prices making it difficult for many to afford a new home. The National Association of Realtors reported that existing home sales rose by 0.8% from April, reaching an adjusted annual rate of 4.03 million units. However, this pace marks the slowest for May since 2009 when the market was struggling in the wake of a housing crisis. April and March had similarly sluggish sales rates compared to the same months in previous years.
Year-over-year, sales dipped by 0.7%, although the figures slightly exceeded economists’ predictions of a 3.95 million unit sales pace. Home prices have consistently increased each month for nearly two years, though May 2023 saw the slowest rate of growth within this period. The national median sales price hit an all-time high of $422,800 for May, climbing 1.3% from the previous year but growing at a more modest rate than since June 2023. Economist Lawrence Yun highlighted that persistently high mortgage rates are a significant factor in the subdued pace of sales.
The housing market has been sluggish since early 2022 as mortgages began to rise from historic pandemic lows. Last year marked the lowest home sales in nearly three decades. Current 30-year mortgage rates hover around 7%, a high observed since mid-January as reported by Freddie Mac. Purchases last month likely initiated in April and May, with interest rates ranging from 6.62% to 6.89%. Last week’s average was 6.81%, reflecting the persistent affordability challenges that prospective buyers face due to high borrowing costs. Since 2019, the median home price soared by 52%, contrasting with a 30% increase in hourly wages.
With rising home prices and persistent mortgage rates, would-be buyers are forced to save more for their down payments. In fact, Realtor.com noted that the annual income necessary to afford a typical home with a 20% down payment has surged to $91,960—a significant rise from four years prior. These affordability issues particularly affect first-time buyers, who made up just 30% of sales last month, down from the historical 40%. The housing market is becoming slightly more buyer-friendly, and mortgage rates are expected to remain between 6% and 7% for the remainder of the year, providing some stability in forecasts.
For buyers able to navigate the current mortgage environment, a wider array of properties is available. The inventory of unsold homes grew by 6.2% from April, and is now 20.3% higher than May of last year, according to the National Association of Realtors. Yet, this remains below pre-pandemic levels where a supply of roughly 2 million homes was typical. The current supply equates to 4.6 months of sales at the present pace, slightly up from 4.4 months in April, but still below the balanced market benchmark of 5 to 6 months.
This increase in available homes partially results from properties taking longer to sell, with an average of 27 days on the market, compared to 24 days last year. As competition wanes due to affordability pressures, sellers might feel compelled to lower prices or offer buyer incentives. Last month, only 28% of homes were sold above the list price, a decline from 30% one year earlier. Builders, facing an 8-month supply of new homes, are also adjusting, often reducing prices or offering incentives to attract buyers.
Danielle Hale of Realtor.com suggested that the market transition from a seller-dominated environment to a more balanced one benefits buyers, with increasing signals that favor home shoppers compared to recent years. As inventory grows, the shifting landscape could provide more opportunities and less pressure for those looking to buy.