US home prices break 0K for the first time

US home prices break $400K for the first time

The average American home price broke above $400,000 for the first time in May, even as sales numbers plummeted for the fourth straight month and rising mortgage rates discouraged first-time buyers.

The National Association of Realtors (NAR) reported Tuesday that the average selling price for existing homes hit a new record at $407,600, a 14.8 percent increase from a year ago.

With higher prices and rising rates squeezing young homebuyers, the number of existing home sales fell 8.6 percent from a year ago to a seasonally adjusted annual rate of 5.41 million.

Yet even with the supply tightness, the housing market remains quite hot, with properties usually on the market for a record 16 days, and prices have just come down.

“Home sales have essentially returned to levels seen in 2019 – before the pandemic – after two years of gangbuster performances,” said Lawrence Yoon, NAR’s chief economist.

“A further decline in sales should be expected in the coming months, given the housing affordability challenges from the sharp rise in mortgage rates this year,” he said.

Average home prices in May, plus price changes from a year ago, are seen for each region

Average home prices in May, plus price changes from a year ago, are seen for each region

The National Association of Realtors said the US average selling price for existing homes hit a new record in May at $407,600, a 14.8 percent increase from a year earlier.

The National Association of Realtors said the US average selling price for existing homes hit a new record in May at $407,600, a 14.8 percent increase from a year earlier.

With supplies still undesirably low, prices may remain high, even if sellers are reducing list prices in some areas where bidding wars were once prevalent.

“Current home sales should slow during the year as mortgage rates rise,” said David Berson, chief economist at Nationwide in Columbus, Ohio.

‘But in the absence of a deep and sustained economic downturn, home sales should not decline as they did in the housing bust – allowing prices to continue to rise higher on average.’

Existing home sales fell in May to their lowest level since June 2020 when sales were rebounding from the COVID-19 lockdown slowdown. Sales rose in the Northeast, but declined in the Midwest, West, and heavily populated South.

Median home prices were among the highest in the West at $633,800. The median price was $294,500 in the Midwest, $375,000 in the South, and $409,700 in the Northeast.

Sales in May were mostly closing on contracts signed one to two months earlier, before mortgage rates began to rise amid rising inflation expectations and the Federal Reserve’s aggressive interest rate hikes.

The average contract rate on a 30-year fixed-rate mortgage jumped 55 basis points last week to a 13.5-year high of 5.78 percent, according to data from mortgage finance agency Freddie Mac.

It was the biggest one-week increase since 1987. The rate has risen by more than 250 basis points since January.

Sales of homes under $250,000, a price range favored by first-time buyers, have fallen sharply as mortgage interest rates rise, squeezing younger home buyers.

Sales of homes under $250,000, a price range favored by first-time buyers, have fallen sharply as mortgage interest rates rise, squeezing younger home buyers.

The average contract rate on a 30-year fixed-rate mortgage jumped 55 basis points last week to a 13.5-year high of 5.78 percent.  This was the sharpest one-week increase since 1987.

The average contract rate on a 30-year fixed-rate mortgage jumped 55 basis points last week to a 13.5-year high of 5.78 percent. This was the sharpest one-week increase since 1987.

The report joined housing starts, building permits and homebuilder sentiment, suggesting that the housing market was losing momentum under the weight of higher borrowing costs.

It was also the latest sign that the overall economy was slowing as the US central bank’s sharp monetary policy tightening.

This was underscored by a separate report from the Chicago Fed on Tuesday, which showed its national activity index fell to 0.01 in May, from 0.40 in April, which it said was “a reason for the slowdown in economic growth in May”. suggestion.’

A zero value for the monthly index is associated with an expansion in the growth trend of the economy. Fears of a recession are rising in the wake of the Fed’s decision last week to raise its policy rate by three-quarters of a percentage point, its biggest hike since 1994.

The Fed has raised its benchmark overnight interest rate by 150 basis points since March.

The housing market is the most sensitive sector to interest rates. Its slowdown could help bring housing supply and demand back into alignment and slow price growth.

The annual rate of increase in home prices has slowed from its peak in early 2021

The annual rate of increase in home prices has slowed from its peak in early 2021

Sales in May were mostly closing on contracts signed one to two months earlier, before mortgage rates began to rise amid rising inflation expectations (file photo)

Sales in May were mostly closing on contracts signed one to two months earlier, before mortgage rates began to rise amid rising inflation expectations (file photo)

The average current home price rose 14.8 percent from a year ago to an all-time high of $407,600 in May, surpassing the $400,000 level for the first time.

The $250,000-$500,000 denomination accounted for 42.0 percent of homes sold last month, with the $50,000-$750,000 segment accounting for 19.3 percent.

Only 19.5 percent of the homes sold were in the sought-after $100,000-$250,000 price range. South and West recorded double-digit price increases.

But pandemic-induced migration is slowing in some areas in the south, which could help dampen price appreciation.

“Affordability migration will lose some steam now, as interest rates have gone up, which will make it a bit more difficult to sell a home in those high-priced markets,” said Mark Wittner, a senior economist at Wells Fargo in Charlotte, North Carolina.

There were 1.16 million pre-owned homes on the market after a seasonal monthly bump of 12.6 percent. Year-on-year supply was down 4.1 per cent.

The steady monthly recovery may continue, with government data from last week showing that housing completion in May rose to the highest level since 2007.

At the pace of May sales, it would take 2.6 months to clear the existing inventory of existing homes, up from 2.5 months a year ago.

Six to seven months’ supply is seen as a healthy balance between supply and demand. Eighty percent of homes sold in May were on the market for less than a month.

First-time buyers accounted for just 27 percent of sales, which economists also explain why home price increases in the double digits persist, even though discounts are more common.

Transactions account for 25 percent of all cash sales — they’re mostly Wall Street institutions taking advantage of rising rental demand.

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