Sales of previously occupied US homes slowed for the fourth month in a row as rising mortgage rates and record high prices discouraged home hunters.
The National Association of Realtors said Tuesday that current home sales fell 3.4% from April last month to a seasonally adjusted annual rate of 5.41 million.
According to FactSet, the pace of annual sales was higher than economists expected. Sales fell 8.6% from May last year.
After climbing at an annual rate of 6.49 million in January, sales have fallen at the slowest pace since June 2020, near the start of the pandemic, when they were running at an annual rate of 4.77 million homes.
Even though home sales were slow, home prices continued to climb in May. The national median home price rose 14.8% in May from a year earlier to $407,600. The NAR said it was the highest ever level as of 1999 data.
The housing market, a vital part of the economy, is slowing as homebuyers face increasingly higher home financing costs following a sharp rise in mortgage rates compared to a year ago.
Average long-term US mortgage rates had their biggest one-week jump in 35 years, after the Federal Reserve last week raised its key rate by three-quarters of a point to tackle the worst inflation in 40 years.
According to mortgage buyer Freddie Mac, the average rate on a 30-year home loan climbed to 5.78% last week, the highest since November of 2008 during the housing crisis.
The increase in mortgage rates was followed by a sharp increase in the 10-year Treasury yield, reflecting expectations for higher interest rates overall. The Fed has signaled its intention to continue its short-term rate hikes as it tries to cool the US economy without causing a recession.
The weekly average at the 30-year rate hovered slightly above 5% for most of May, so the most recent increase in rates has yet to be reflected in home sales figures.
“Today’s mortgage rates are knocking on the door to 6%,” said Lawrence Yoon, chief economist at NAR. “Given those conditions, I anticipate a further decline in home sales.”
Some real estate trends took the likes of buyers in the past month. As is usual at this time of year, the number of homes in the market increased in May compared to the previous month. Some 1.16 million properties were available for sale by the end of May, up 12.6% from April, but down 4.1% from April last year.
Nevertheless, at the current selling pace, the level of properties for sale is equivalent to a supply of 2.6 months, NAR said. This is up from 2.2 months in April and 2.5 months a year ago. This is still below the 4-month supply indicating a more balanced market between buyers and sellers.
Yoon expects the list of homes for sale to be running above the level a year ago by autumn.
This year’s decline in home sales has prompted some economists to adjust their housing market outlook for 2022. Realtor.com is now expecting US home sales to decline 6.7% from last year. That would still make 2022 the second-best year for home sales since 2021, according to Danielle Hale, chief economist at Realtor.com.
Yet despite high mortgage rates putting pressure on affordability, homes that were sold did not stay on the market for long. On average, homes sold in just 16 days after they hit the market last month, the fastest sales pace tracked by the NAR. April had 17 days.