According to a recent report by The Wall Street Journal, home prices in May reached an all-time high, even though there was a decline in demand and sales activity. The median home price across the United States now stands at $419,300, marking a 5.8% rise compared to the previous year. This new record high is attributed to homeowners’ reluctance to list their properties due to the prevailing high mortgage rates.
Home prices reached a new record in May, but home sales declined for the 3rd straight month. While the sales pace is above last year’s cyclical low, figures are still low historically. Inventory is rising, but affordability is curbing demand. pic.twitter.com/F7NOqFqbOw
— Cetera Investment Management (@ceteraIM) June 21, 2024
The decline in housing demand, primarily due to affordability issues, has led to a 0.7% decrease in sales of previously owned homes in May. Despite this, the limited housing inventory has not been offset by the decrease in demand. Lawrence Yun, NAR’s chief economist, noted that the American real estate market is currently experiencing an unusual situation where home sales are low, yet prices are reaching record highs. Rising prices, along with higher mortgage rates, are making it increasingly difficult for working-class Americans to enter the real estate market.
The median price of a home has increased from $270,400 in February 2020 to $419,300 currently, while the average 30-year-fixed-rate mortgage has risen from 3.89% to 6.87%. However, there is a possibility that price gains may slow down in the coming months. The decreased affordability has led to a significant drop in consumer sentiment, with only 14% of consumers believing it is a good time to buy a home. This has resulted in homes staying on the market for longer periods as potential buyers wait for a more favorable rate environment, leading to an increase in inventories.
As the number of buyers decreases, housing inventories are slowly rising, which is expected to help ease housing prices, according to The Wall Street Journal. Since President Biden took office in January 2021, inflation has increased by 20.1%, with annual inflation peaking at 9% in June 2022. In an effort to combat this inflation, the Federal Reserve raised its federal funds rate from 0%-0.25% to 5.25%-5.5%, causing a surge in mortgage costs and other forms of borrowing for ordinary Americans.
