Last June, home prices in the US broke all previous records. Despite decreased sales of homes across the nation, the elevated home prices are still in place.
Due to buyers’ inability to afford the rising prices, home sales have been steadily declining for the past five months.
The average price rose by $416,000 over the previous month. The National Association of Realtors reports that the amount is 13.4% higher than the price from the previous year, marking the home price growth that has lasted for decades.
Sales have decreased while prices have gone up. In June of last year, fewer single-family homes, condos, co-ops, and townhomes were purchased. Sales were also at their lowest level since 2020 during that month. This makes sense given how the pandemic is affecting the economy.
The chief economist of the National Association of Realtors, Lawrence Yun, said, “Falling housing affordability continues to take a toll on potential homebuyers. Both mortgage rates and home prices have risen too sharply in a short span of time.”
The number of homes on the market increased, though, by 9.6% at the end of June.
“Finally, there are more homes on the market,” Yun said. “Homes priced right are selling very quickly, but homes priced too high are deterring prospective buyers.”
Affordability and Availability
The median home price in Miami increased the most from a year ago, by 40.1%, according to the NAR report. Nashville had a price increase of the same percentage (30.6%) as Orlando within a year.
It’s interesting to note that regions with the highest prices also saw a rise in the number of homes with lower prices. The most people were in Austin, then Phoenix, then Las Vegas.
Although the supply of homes has increased in many cities, prices should still be reduced, buyers are now being restrained by rising mortgage rates. Mortgage rates and rising inventory both influence the pace of home sales, according to Danielle Hale, chief economist at Realtor.com, but it’s unclear which factor has a greater influence.
“I expect affordability to be the bigger driver than availability moving forward,” Hale stated.
“Home shoppers continue to leverage workplace flexibility in looking for ways to reduce their housing costs — enacting their own, personal inflation-fighting plans. As mortgage rates and prices of other goods and services continue to climb, home shoppers are likely to become even more budget conscious. This is especially true if concerns about the strength of the job market — which has so far remained resilient – grow,” added Hale.
Swift market despite increase in prices
Even with these components, the market for purchases is still brisk. Within 14 days of being listed on the market, a property enters into a contract. The average duration last year was 17 days, but some people experienced 30 days.
“Whenever homes are listed, they are attracting buyers,” Yun said.
Yun hypothesizes that buyers may be taking advantage of the locked-in interest rate, which would explaine why buyers secure a property on the market more quickly.
“Mortgage rates have been trending higher,” Yun added. “Maybe buyers are trying to take advantage of a lower locked-in rate. That period is coming to an end quickly. They want to sign the contract and close the deal quickly.”
But according to Yun, the market’s quickness would only last a short while. Yun added that the housing shortage would become more evident in the future, despite the rising trend in inventory. This is as a result of builders’ declining interest in creating single-family homes and their preference for multifamily structures.
“I don’t foresee any oversupply coming, even as sales retreat,” Yun concluded.