As Rising Mortgage Rates Continue To Weigh on Housing Activity

• Sales of existing homes fell 3.4% to 5.41 million annualized units in May from the prior month, the lowest level since June 2020.
• The inventory of unsold existing homes in May improved slightly to 1.2 million from 1.0 million in April.
• Sales of existing homes were down on a year-over-year basis in each of the four major U.S. regions.
• Affordability will erode further as mortgage rates rise, resulting in slower housing activity through 2022.

Sales of existing homes fell 3.4% in May to 5.41 million annualized units, the lowest level since June 2020, according to the National Association of Realtors. This means 5.41 million units would be sold in 2022 if sales were at the same pace as they were in May. Existing-home sales fell on the month in the Midwest, South, and West while sales rose in the Northeast. Existing-home sales were down on a year-over-year basis in each of the four major regions for the fourth straight month. 

On a year-ago basis, total existing-home sales were down 8.6% in May; sales of single-family homes were down 7.7% while sales of condos and co-ops tumbled 15.3%. The median existing-home selling price for all housing types in May was $407,600, up 14.8% from May 2021 ($355,000). This marks 123 straight months of year-over-year increases. The median existing single-family home price was $414,200 in May, up 14.6% from May 2021. The median existing condo price was $355,700 in May, an annual increase of 14.8%. The months’ supply of existing homes for sale was 2.6 months in May at the current sales pace, up from 2.2 months in April. Properties typically remained on the market for 16 days in May down from 17 days in April and 17 days in March 2022 and May 2021. 27% of buyers were first-time buyers, down from 31% a year ago. 

Existing-home sales declined for the fourth consecutive month as rising mortgage rates, a declining stock market, and economic uncertainty weighed on housing activity. Housing inventory was low coming into the pandemic after many years of underbuilding following the Great Recession. But homebuilders have grappled with inflation, supply-chain disruptions, and labor constraints, putting downward pressure on the inventory of unsold existing homes.

Housing supply, particularly new construction, should improve through the year; the number of homes under construction is at the highest level since the early 1970s. Fed Chair Powell stated in his press conference on June 15 that homebuyers “need a bit of a reset” and we “need to get to a place where supply and demand are back together.” The demand-supply imbalance will improve as mortgage rates continue their upward trajectory and more homes come online, reducing house price growth in 2022.

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