High rates, prices keep existing home sales muted
Though there was an uptick in existing home sales as spring progressed, last month was still the slowest for the month of May since 2009.
Key points:
- The seasonally adjusted annual rate of existing home sales came in at 4.03 million in May, which beat expectations but remained behind last year’s pace.
- High mortgage rates continue to be a drag on the market, but a drop in rates later this year could energize home sales.
- It’s not quite a buyers market yet, but rising inventory — which was up over 20% year-over-year in May — is pushing real estate in that direction.
Existing home sales in May were a little stronger than expected but still lagged behind last year's pace.
The seasonally adjusted annual rate came in at 4.03 million last month, according to the National Association of Realtors. That rate was up 0.8% from April but down 0.7% year-over-year, which the National Association of Home Builders noted was the slowest pace for the month of May since 2009. However, economists' median forecast for existing home sales in May had been even lower at 3.95 million, according to Reuters.
Prices continued to climb to a record high for the month of May despite the sluggish market. NAR estimated that the median existing home sales price was $422,800, up 1.3% from a year ago and the 23rd month in a row of year-over-year price increases.
High mortgage rates remain a challenge
Lower mortgage rates are needed to revitalize sales, according to NAR Chief Economist Lawrence Yun — a belief he has shared multiple times this year amid high rates.
"The relatively subdued sales are largely due to persistently high mortgage rates. Lower interest rates will attract more buyers and sellers to the housing market," Yun said in a June 23 news release.
"Increasing participation in the housing market will increase the mobility of the workforce and drive economic growth," Yun added. "If mortgage rates decrease in the second half of this year, expect home sales across the country to increase due to strong income growth, healthy inventory, and a record-high number of jobs."
It doesn't appear that mortgage rates will drop significantly anytime soon, given the air of economic uncertainty and the Federal Reserve's continued wait-and-see approach to short-term interest rate cuts. However, some members of the Federal Reserve Board of Governors have started discussing the possibility of restarting interest rate cuts this summer.
Fannie Mae is also not expecting mortgage rates to drop significantly. On June 23, Fannie Mae adjusted its forecast for 2025 existing home sales to 4.14 million (down from its May forecast of 4.24 million). Fannie Mae is also predicting that 30-year mortgage rates will end the year around 6.5%, up from its forecast of 6.1% last month.
The bombing of Iran's nuclear sites by the U.S. over the weekend had not led to a spike in oil prices as of June 23. If oil prices increase, inflation could also rise, which could in turn keep mortgage rates elevated.
It's also possible that bonds could become a safe haven for investors, which could lead to lower mortgage rates. "While this CAN be true, it's not a hard-and-fast rule," Mortgage News Daily Chief Operating Officer Matthew Graham wrote in an online post.
As of June 23, the 30-year fixed-rate mortgage had dropped slightly to 6.84%, according to Mortgage News Daily.
Inventory continues to rise
If rates do start to decline, buyers will have choices in most markets. NAR estimated inventory to be at 1.54 million units across the U.S. last month, up 20.3% compared to May 2024.
This equaled a 4.6-month supply of unsold inventory, up from 3.8 months a year ago.
Moving toward a buyer-friendly market
The inventory uptick hasn't pushed real estate into a buyers market yet, according to Danielle Hale, chief economist at Realtor.com.
"I would say the market is shifting in a buyer-friendly direction," Hale said. "We're moving from a pretty seller-friendly housing market to one with more balance. This means we're seeing more buyer-friendly market signals than we have in years. In fact, outside of a temporary blip early in the pandemic, we're likely to see the most buyer-friendly summer in nine years."
Hale noted that once real estate shifts into a balanced buyer or seller market, it can stay there for a period of time. Before the current lengthy seller's market that started in 2016, the U.S. had a balanced market between 2012 and 2016, and a buyers market between 2006 and 2012.
Though real estate appears to be moving toward friendlier conditions for buyers, it still doesn't feel that way for many Americans as costs remain near record highs, said Redfin Senior Economist Asad Khan.
"Buyers may gain more negotiating power in the coming months as more sellers face a tough reality: Sellers no longer hold all the cards," Khan said.