U.S. existing home sales continue to face challenges as the housing market grapples with a severe supply shortage. In June, sales of previously owned homes dropped by 3.3%, leaving would-be homebuyers with limited options. The National Association of Realtors (NAR) reported that the annual rate of existing home sales fell to 4.16 million units, marking an 18.9% decline from June 2022.
“There are simply not enough homes for sale,” voiced Lawrence Yun, the chief economist at NAR, expressing the growing concern over the scarcity of available properties. Yun believes that the market could easily handle a doubling of inventory to meet the high demand.
With only about 1.08 million homes listed for sale at the end of June, unchanged from the previous month but down 13.6% from the previous year, potential buyers are facing a fiercely competitive market. The lack of inventory has driven up consumer demand, resulting in homes being sold on average in just 18 days last month, the same as in May. This represents a significant decrease from pre-pandemic times when homes typically sat on the market for about a month before finding a buyer.
The rapid pace of sales has led to a concerning situation where existing home inventory could be exhausted in approximately 3.1 months at the current rate. Industry experts believe that a healthier level of inventory would require a pace of six to seven months.
“Affordability constraints and mortgage rate lock are keeping existing homeowners from listing their homes, and with the flow of listings coming onto the market down significantly from pre-pandemic norms, sales continue to take a hit,” explained Nicole Bachaud, a senior economist at Zillow, highlighting the multiple factors contributing to the current market conditions.
The median price of an existing home sold in June reached approximately $410,200, marking the second-highest price ever recorded since the NAR began tracking data in 1999. This figure is down slightly by 0.9% from the all-time high of $413,800 recorded one year ago. The Northeast and Midwest regions experienced housing cost increases, while the South and West witnessed a retreat in prices.
Interest Rates and Mortgage Market
The Federal Reserve’s aggressive interest-rate hike campaign led to soaring mortgage rates above 7% for the first time in nearly two decades, which initially cooled down the red-hot housing market. However, despite the interest rates being slow to retreat, home prices are once again on the rise as buyers adjust to the new rates and fiercely compete for the limited available supply.
Freddie Mac reported that the popular 30-year fixed mortgage rates are currently hovering around 6.96%, well above the 5.51% rate recorded one year ago and the pre-pandemic average of 3.9%. The lack of available homes for sale has contributed to this trend, with sellers who locked in low mortgage rates before the pandemic hesitant to sell in the current high-rate environment, leaving few options for eager buyers.
A recent report from Realtor.com revealed that the number of available homes on the market in June decreased by over 47% compared to pre-pandemic levels in early 2020. The combination of high demand, limited inventory, and rising mortgage rates is putting significant pressure on the housing market, making it a challenging time for prospective homebuyers.
As the housing market faces ongoing challenges, industry players are closely watching for any signs of relief. The hope is that as supply increases and interest rates stabilize, the housing market will find a healthier balance, creating more opportunities for buyers and sellers alike. However, for now, the struggle continues for would-be homebuyers seeking to find their dream homes in a market defined by scarcity and fierce competition.
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