Existing Home Sales Fell to the Lowest Level Since June 2020
Sales of existing homes decreased 3.4 percent in May, to a 5.41 million seasonally adjusted annual rate. That is the fourth consecutive monthly decline and leaves the selling pace at the lowest level since June 2020 following the lockdown recession (see first chart). Sales were down 8.6 percent from a year ago.
Sales in the market for existing single-family homes, which account for about 89 percent of total existing-home sales, dropped 3.6 percent in May, coming in at a 4.80 million seasonally adjusted annual rate (see first chart). From a year ago, sales were down 7.7 percent. Single-family sales also fell for the fourth consecutive month and were at their slowest pace since June 2020.
The single-family segment saw sales decline in three of the four regions. Sales fell 6.0 percent in the West, 5.7 percent in the Midwest, and 2.7 percent in the South, the largest region by volume while sales were up 1.8 in the Northeast, the smallest region by volume. Measured from a year ago, sales were down in all four regions (-10.5 percent in the West, -9.5 percent in the Northeast, -7.2 percent in the Midwest, and -6.2 percent in the South).
Condo and co-op sales fell 1.6 percent for the month, leaving sales at a 610,000 annual rate for the month versus 620,000 in April (see first chart). From a year ago, condo and co-op sales were off 15.3 percent and were at their slowest pace since July 2020.
Condo and co-op sales were down in one region in May, falling 3.4 percent in the South and were unchanged in the other three regions. From a year ago, sales were down in all four regions (-22.6 percent in the South, -11.1 percent in the Midwest, -8.3 percent in the Northeast, and -6.7 percent in the West).
Total inventory of existing homes for sale rose in May, increasing by 12.6 percent to 1.16 million, leaving the months’ supply (inventory times 12 divided by the annual selling rate) up 0.4 months at 2.6, the highest since August 2021 but still low by historical comparison.
For the single-family segment, inventory was up 13.2 percent for the month at 1.03 million (see second chart) but is 1.0 percent below the May 2021 level. The months’ supply was 2.6, up from 2.2 in the prior month, the highest since September 2020 (see third chart).
The condo and co-op inventory increased 7.3 percent to 132,000 (see second chart), pushing the months’ supply up to 2.6 from 2.4 in April. Months’ supply is still 10.3 percent below May 2021 but has risen for four consecutive months (see third chart).
The median sale price in May of an existing home was $407,600, 14.8 percent above the year ago price. For single-family existing home sales in May, the price was $414,200, a 14.6 percent rise over the past year and a record high (see fourth chart). The median price for a condo/co-op was $355,700, 14.8 percent above May 2021 and also a record high. At the same time, mortgage rates have rocketed higher recently, reaching 5.78 percent by mid-June (see fourth chart).
The combination of record-high home prices and sharply higher mortgage rates has sent housing affordability plunging. The Housing Affordability Index from the National Association of Realtors measures whether or not a typical family could qualify for a mortgage loan on a typical home. A typical home is defined as the national median-priced, existing single-family home as calculated by NAR. The typical family is defined as one earning the median family income as reported by the U.S. Bureau of the Census. A value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home. An index above 100 signifies that a family earning the median income has more than enough income to qualify for a mortgage loan on a median-priced home, assuming a 20% down payment. As of April, the index stood at 109.2, the lowest since July 2007 (see fifth chart).
Housing is likely to be under intense pressure as record-high prices and the recent surge in mortgage rates reduce affordability and push more and more buyers out of the market.
Robert Hughes
Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.
