U.S. existing home sales fell for a third straight month in May, the most active time of the year for the housing market, as rising mortgage rates and record home prices discouraged many would-be buyers from buying.
U.S. existing home sales fell 0.7% from the previous month to a seasonally adjusted annual rate of 4.11 million in May, the National Association of Realtors said Friday.
Existing home sales also fell 2.8% compared to May last year.
The latest sales figure was slightly higher than the 4.07 million units economists had been expecting, according to FactSet.
“We had hoped we would see a real recovery this spring, but that hasn’t happened,” said Lawrence Yun, chief economist at the National Bureau of Economic Research.
Despite the decline in sales, home prices have risen year-over-year for 11 consecutive months.
The national average sales price rose 5.8% year over year to $419,300, the highest price recorded since 1999. It is also up 51% from five years ago.
Home prices have risen even as sales have slowed, and the supply of properties on the market has reached its highest level in four years.
“This is a bit of a strange phenomenon,” Yoon said. “Home sales activity is slow, prices are at record highs, and homes still seem to have multiple buyers.”
The U.S. housing market has been in a slump since 2022, when mortgage rates began to rise from pandemic-era lows.
Existing home sales fell to the lowest level in nearly three decades last year as the average interest rate on a 30-year mortgage jumped to a 23-year high of 7.79 percent, according to mortgage buyer Freddie Mac.
The average rate on a 30-year mortgage has hovered around 7% this year as better-than-expected reports on the economy and inflation have forced the Federal Reserve to keep short-term interest rates at their highest levels in more than two decades.
Federal Reserve officials said last week that inflation has fallen further toward their 2 percent target in recent months and signaled they plan to cut interest rates once this year.
The central bank had previously predicted up to three interest rate cuts in 2024, raising hopes in the housing market that mortgage rates would have fallen further by now.
“The Federal Reserve’s interest rate cuts were expected but have not been implemented and continue to be delayed, which may be slowing the recovery in home sales,” Yoon said.
Rising mortgage rates are causing many homeowners who bought or refinanced their homes more than two years ago to hold off on selling now because they don’t want to give up their fixed-rate mortgages at less than 3 or 4 percent — a trend real estate experts call the “lock-in” effect.
According to Realtor.com, as of the end of last year, more than 50% of homes with mortgages had interest rates below 4% and 87% had interest rates below 6%.
Another factor weighing on the housing market is a lack of supply of homes for sale, although that has been easing this year as homes take longer to sell.
According to the National Association of Realtors (NAR), there were a total of about 1.3 million unsold homes as of the end of last month, up 6.7% from April and 18.5% from May of last year.
That equates to a 3.7-month supply at the current sales pace.
In a more balanced market between buyers and sellers, there is a four to five month supply.
“We’ll see if this translates into increased home sales,” Yoon said. “Right now, it hasn’t, but at least inventory is starting to ease.”
