Don’t get too excited about the housing market, despite a couple recent pieces of good news.
First, pending home sales crawled 0.7% higher in May from April, after six straight monthly declines. But sales dropped 13.6% from May 2021, according to the National Association of Realtors.
"Despite the small gain in pending sales from the prior month, the housing market is clearly undergoing a transition," NAR Chief Economist Lawrence Yun said in a statement. "Contract signings are down sizably from a year ago because of much higher mortgage rates."
Mortgage rates have climbed as the Federal Reserve has boosted its federal funds rate target 150 basis points since March.
Mortgage Rates Near 14-Year High
The 30-year fixed-mortgage rate averaged 5.81% as of June 23, hitting a near-14-year-high, according to Freddie Mac. The rate rose from 5.78% June 16. It totaled just 3.02% a year ago.
"Trying to balance the housing market by choking off demand via higher mortgage rates is damaging to consumers and the economy," Yun added. "The better way to balance the market is through increased supply, which also helps the broader economy."
The other good news: new home sales rose 10.7% in May from April, after four consecutive monthly declines. But sales were down 5.9% from May 2021, according to the Commerce Department.
The monthly increase likely stemmed from buyers trying to lock in current mortgage rates before they rise higher, experts said.
"We suspect May's surprisingly strong new home sales will prove to be the last hurrah for new home sales this year," Mark Vitner, senior economist at Wells Fargo, told Reuters.
Existing-Home Sales Tumble
Existing-home sales fell for the fourth straight month in May—down 3.4% from April and 8.6% from a year ago, according to the National Association of Realtors.
"Home sales have essentially returned to the levels seen in 2019 – prior to the pandemic – after two years of gangbuster performance," the NAR’s Yun said in a statement.
The median existing-home sale-price hit $407,600 in May, up 14.8% from May 2021. This marks 123 consecutive months of year-over-year increases, the longest streak in NAR records.
Total housing inventory at the end of May rose 12.6% from April and slid 4.1% from a year ago.
As of May unsold inventory totaled a 2.6-month supply at the prevailing sales pace, up from 2.2 months in April and 2.5 months in May 2021.
"Further sales declines should be expected in the upcoming months given housing affordability challenges from the sharp rise in mortgage rates this year," Yun said.
"Nonetheless, homes priced appropriately are selling quickly and inventory levels still need to rise substantially – almost doubling – to cool home price appreciation and provide more options for home buyers."
