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Home prices reached a record high in June, adding more pressure to an already strained market.
The median price for a home sold in the month was $435,300, up 2% from a year ago, and the 24th month of year-over-year price increases, according to the National Association of Realtors. Meanwhile, sales of previously owned homes fell 2.7% on a monthly basis to a seasonally adjusted annual rate of 3.93 million.
Realtor.com senior economist Joel Berner said there haven’t been fewer than 4 million sales since 1995, and “we’re on pace for the slowest year in 30 years.”
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Sales fell swiftly in the Northeast, Midwest and South on a monthly basis, though they rose “modestly” in the West. On an annual basis, sales fell in the Northeast and West but rose in the Midwest and South, according to the report.
According to U.S. census data, builders are constructing the smallest homes in nearly 14 years. ( Photographer: David Paul Morris/Bloomberg via Getty Images / Getty Images)
NAR chief economist Lawrence Yun blamed record high home prices on “multiple years of undersupply” of homes for first-time buyers.
“Home construction continues to lag population growth. This is holding back first-time home buyers from entering the market. More supply is needed to increase the share of first-time homebuyers in the coming years even though some markets appear to have a temporary oversupply at the moment,” Yun said.
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Houses under construction at the Norton Commons subdivision in Louisville, Kentucky, US, on Friday, July 1, 2022. (Photographer: Luke Sharrett/Bloomberg via Getty Images / Getty Images)
Meanwhile, high mortgage rates are compounding the issue, with Yun saying they are keeping buyers out of the market and, subsequently, “causing home sales to remain stuck at cyclical lows.” If the average mortgage rates were to decline to 6%, Yun said their scenario analysis suggests an additional 160,000 renters would become first-time homeowners, creating elevated sales activity from existing homeowners.
Berner said that while sales prices rose in June, it’s important to take that figure with a grain of salt. For one, prices typically rise during this time of year. More importantly, listing prices have remained flat – suggesting that the lower end of the market isn’t seeing much activity.
“We’re seeing pretty flat behavior in listing prices, but the sale price keeps going up,” Berner said. “Really, the top end of the market is outperforming the lower end of the market.”
Homes in Rocklin, California, US, on Tuesday, Dec. 6, 2022. (Photographer: David Paul Morris/Bloomberg via Getty Images / Getty Images)
The data shows that wealthier buyers are purchasing higher-priced homes, while first-time buyers are being priced out of entry-level options. Berner said that the current movement in the market is concentrated in the higher price tiers nationwide. That, he said, is why the average sale price appears elevated – not because home values are broadly increasing.
The biggest way to cultivate more movement in the bottom tier of the market is to have lower interest rates.
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Realtor.com recently forecast that the rate on the benchmark 30-year fixed mortgage could fall to 6.4% by the end of the year. Berner said it remains unclear if that will be enough to really move the needle.
Mortgage buyer Freddie Mac said on Thursday that the average rate on a 30-year fixed mortgage is 6.74%.
