The home sales frenzy that has prevailed since COVID and rock bottom interest rates is finally subsiding.
Existing-home sales retreated for the fourth consecutive month in May, according to the National Association of Realtors®. Month-over-month sales declined in three out of four major U.S. regions, while year-over-year sales slipped in all four regions.
This is slowing rising prices, though the national median price just topped $400,00 for single-family homes, up 15 percent in a year. But it also means annual sales are returning to the range that prevailed since the Great Recession in 2007, as can be seen in Calculated Risk’s above graph.
Calculated Risk’s Bill McBride predicts that housing supplies will increase this year because a record number of homes will be completed due to a record number of housing units under construction—some 1.7 million residential units.
“Supply constraints have lengthened the time from start to completion. We can see the impact of supply constraints by looking at the gap between single family starts and completions. It usually only takes about 6 months between starting a single-family home and completion, but it has taken longer during the pandemic,” said McBride.
Total existing-home sales,1 https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, fell 3.4 percent from April to a seasonally adjusted annual rate of 5.41 million in May. Year-over-year, sales receded 8.6 percent (5.92 million in May 2021).
"Home sales have essentially returned to the levels seen in 2019 – prior to the pandemic – after two years of gangbuster performance," said NAR Chief Economist Lawrence Yun. "Also, the market movements of single-family and condominium sales are nearly equal, possibly implying that the preference towards suburban living over city life that had been present over the past two years is fading with a return to pre-pandemic conditions."
Total housing inventory registered at the end of May was 1,160,000 units, an increase of 12.6% from April and a 4.1% decline from the previous year (1.21 million). Unsold inventory sits at a 2.6-month supply at the current sales pace, up from 2.2 months in April and 2.5 months in May 2021.
The problem is that first-time buyers have an even more difficult time in purchasing a residence, hence the surge in apartment construction.
First-time buyers were responsible for 27 percent of sales in May, down from 28 percent in April and down from 31 percent in May 2021. NAR's 2021 Profile of Home Buyers and Sellers – released in late 2021 – reported that the annual share of first-time buyers was 34 percent.
In fact, first-timers have made up to 40 percent of purchases when interest rates were lower, so will either now have to wait for either changes in zoning laws that allow a greater housing density near transportation hubs, something that communities should encourage that want to attract more working folk to their towns, or the next time interest rates come down.
Harlan Green © 2022
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