Existing home prices set record highs last May, which partly explains why US home sales are declining for the fourth consecutive month. Average home sales now exceed $350,000.
This is 24% higher compared to prices last year, which is also the new record for year-on-year increases since 1999.
Home Sales Decline As Prices Go Way Up
According to the National Association of Realtors, median existing-home sales prices exceeded $350,000 for the first time.
Since last summer, home sales prices continue to rise, as lower interest rates created demand even as supply couldn’t keep up. The lockdown induced demand for more spacious homes located away from the crowded cities.
Coupled with easy payment terms, the market soon found itself running out of houses to sell.
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However, the continuous rise in home prices is beginning to take effect on would-be buyers. As more and more homes are pricing themselves out of range, home sales begin drying up.
As of May, existing-home sales declined by almost a point. This marked the fourth straight decline month for the year.
Home Sales Slow Down Due To Lack Of Available Houses
At the same time, sales are also dropping due to the lack of available ready houses to sell. Many real-estate agents reported that homes placed on the market move quickly, with each house taking an average of 17 days to sell. Among buyers, those with limited cash are the ones struggling to close the sale.
According to a NAR survey, over half of existing home buyers who took mortgages put up at least 20% down payment. Lawrence Yun, the NAR chief economist, sees affordability starting to pull away from many buyers. “Affordability appears to be now squeezing away some buyers. There are so many people who have been outbid, frustrated they are unable to buy.”
Mortgage Applications Slowing Down As Well
Another tell-tale sign that the housing market is cooling off is mortgage applications. Home purchase applications fell 17% compared to last year, according to the Mortgage Bankers Association.
Last May, around 35% of consumers surveyed by Fannie Mae agreed that now is a good time to buy a house. This number is the lowest on record since the 2010s. Fannie Mae’s chief economist said that the reaction is “almost all driven by the attitudes about price.”
Despite losing some potential buyers, the housing market remains red-hot. Homes for sale continue to receive multiple offers, Meanwhile, many buyers will find it hard to ignore low mortgages. As a result, Redfin Corp. reported that more than 50% of homes sold last May managed to get a price higher than their list prices.
Wall Street Getting A Piece Of The Action
Meanwhile, Wall Street and big investment firms started moving to get a piece of the action. Many firms bought homes for the purpose of renting them out.
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For example, investment firm Blackstone Group Inc. announced earlier this week that it will pay $6 billion for Home Partners of America Inc. HPA owns more than 17,000 houses throughout the U.S.
While rental-home investors begin snapping up houses, some are buying homes through sale-leaseback transactions. Sale-leasebacks are a way for struggling homeowners to pay their outstanding debts while staying at the house in question.
Watch the Reuters news video reporting that US home sales fall as home prices hit record high:
What do you think of the current housing market? Will it implode soon due to rising prices, or will more Americans continue to buy homes while interest rates remain low?
Let us know what you think. Share your thoughts below.