Stay up-to date with the latest news in Real Estate Development.
May saw record highs for home prices despite stagnant sales
Sales of previously owned homes hit a 30-year low in May, remaining flat with a 0.7% drop from April to an annualized rate of 4.11 million units, per the National Association of Realtors (NAR). This marks a 2.8% decrease from May 2022. Contracts signed in March and April led to this decline, influenced by mortgage rates that peaked over 7.5% in mid-April before settling around 7% in May.
"Home sales refuse to recover," stated NAR's chief economist Lawrence Yun. Sales fell 1.6% in the South, while other regions remained stable.
Inventory rose by 6.7% month-to-month and 18.5% year-over-year, providing a 3.7-month supply. Yun noted that increased inventory could boost sales and stabilize prices soon.
The median home price in May reached a record $419,300, up 5.8% year-over-year. Mortgage payments have more than doubled in five years due to higher rates and prices, which are over 50% higher now.
Sales of homes under $250,000 dropped, while those priced between $250,000 and $500,000 rose by 1%. Homes priced between $750,000 and $1 million increased by 13%, and those over $1 million surged by nearly 23%. Cash purchases accounted for 28% of sales, with first-time buyers making up 31%, up from 28% the previous year.
Despite higher prices, competition remains strong, with two-thirds of homes selling within a month. However, well-priced, move-in-ready homes sell quickly, while others linger on the market longer.
Demand for mortgages declines despite interest rates reaching their lowest point since March
Consumers showed little interest in the recent drop in mortgage rates. Total mortgage application volume rose just 0.9% from the previous week, according to the Mortgage Bankers Association. The average 30-year fixed-rate mortgage decreased to 6.94% from 7.02%, with points dropping to 0.61 from 0.65.
"Mortgage rates dropped last week following the latest inflation data and the [Federal Open Market Committee] meeting," said Mike Fratantoni, MBA’s chief economist.
Refinance demand fell 0.4% for the week but was up 30% from last year. Mortgage applications to purchase a home rose 2% for the week but were down 12% from last year. Home sales have slowed due to volatile interest rates, low inventory, and high prices.
“Purchase volume is still more than 10% behind last year’s pace, but MBA is forecasting a pickup in home sales for the remainder of the year,” Fratantoni added.
Mortgage rates rose slightly at the start of the week but fell Tuesday after weak retail sales data. "It painted a less upbeat picture for the American consumer," wrote Matthew Graham, COO at Mortgage News Daily.
The housing market is becoming less competitive
More homeowners are listing their homes, but sales are slow due to high prices and interest rates. New listings in May increased 13% from last year, per Zillow. Inventory rose 22% as buyers stayed away, causing homes to sit on the market longer. In May, 61.9% of homes were unsold for 30 days, and 40.1% for two months, per Redfin.
Despite a 34% inventory deficit from pre-pandemic levels, buyers face high mortgage rates, with the 30-year fixed rate at 6.95% on June 13. Buyers wait for lower rates, though significant drops are unlikely soon.
In Dallas, 60.5% of listings were unsold for 30 days. Fort Lauderdale saw 75.5%, Tampa 68.7%, and Jacksonville 69.2%, according to Redfin. This gives buyers more bargaining power.
Sellers in high inventory areas might need to cut prices to attract buyers, while those in low inventory areas benefit from high home equity and low mortgage payments. “Price cuts sell homes,” said Zillow's Orphe Divounguy.
In the US, the average new home is getting smaller. What that entails for buyers is as follows
The typical new house is getting smaller. In Q1 2024, the median size of a newly built single-family home was 2,140 square feet, down from 2,256 square feet in Q1 2023. This is the smallest since 2009, according to the U.S. Census Bureau and NAHB. Since 2015, home sizes have been shrinking, except for a brief increase in 2021.
Homebuyers prefer smaller homes now, partly due to high prices. The typical desired home size is 2,067 square feet, down from 2,260 square feet in 2003. Nearly 30% of recent buyers are single, often opting for smaller homes.
In 2024, 28% of buyers purchased homes between 1,501-2,000 square feet, and 26% bought homes between 2,001-2,500 square feet, per NAR. Builders are adapting, with 38% building smaller homes in 2023 and 26% planning to do so this year. Zoning rules also impact home sizes, but some areas are relaxing regulations, leading to more townhouses.
In Q1 2024, 42,000 townhouses began construction, up 45% from Q1 2023. Smaller homes often mean multifunctional spaces and more storage. During the pandemic, many re-evaluated their home needs, leading to lower energy and maintenance costs for smaller properties.
