U.S. Home Sales Decline in May Due to Higher Rates and Record Prices

According to a recent report by real estate firm Redfin, home sales in the United States dropped significantly in May, reaching some of the lowest levels seen in the past decade. The decline comes as both demand from buyers and the number of homes available for sale struggle amidst high mortgage rates.

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Importance of the Issue

Housing affordability in the U.S. has reached a historical low. Median home prices have soared to unprecedented levels, while the average 30-year fixed mortgage rate remains around 7%. These factors have led to decreased interest from potential buyers and reduced the supply of homes on the market. Redfin notes that the number of homes listed for sale is roughly 25% lower than before the COVID-19 pandemic.

Homeowners are hesitant to sell their properties purchased at lower mortgage rates during a period of historically low borrowing costs, especially as current rates are significantly higher.

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In May, a total of 407,959 homes were sold. This figure represents one of the lowest monthly sales volumes over the past decade, second only to October 2023 (398,537) and May 2020 (369,300), according to data from Redfin.

Statistics

In May, seasonally adjusted home sales declined by 1.7% compared to the previous month and by 2.9% compared to the same period last year. Meanwhile, the median home sale price rose to a record high of $439,716, marking a 1.6% increase from the previous month and a 5.1% increase from the previous year, according to Redfin.

Seasonally adjusted new listings in May saw a slight increase of 0.3% from the previous month and an 8.8% increase from the previous year. However, they remain approximately 20% below pre-pandemic levels observed in May 2019.

Expert Opinion

Redfin Senior Economist Elijah de la Campa explains, "Home sales are sluggish due to high purchasing costs, which are making both buyers and sellers nervous. With limited inventory, buyers in some markets are competing in bidding wars, driving home prices to new highs."

Investor Response

In 2023, stocks of homebuilders experienced a surge due to tighter supply, leading to increased sales. However, this momentum has slowed down recently:

• Pultegroup Inc. has seen an 11.8% increase year-to-date,

• D.R. Horton Inc. has decreased by 5.61%,

• Lennar Corp. has increased by 4.03%.

Also Read: U.S. New Home Sales Decline in April, Prices Rise Compared to Last Year