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US home prices break $400K for the first time ever

The median US home price broke above $400,000 for the first time in May, even as sales fell for the fourth straight month and rising mortgage rates discouraged first-time buyers.

The median sales price for existing homes set a new record at $407,600, up 14.8 percent from a year ago, the National Association of Realtors (NAR) reported Tuesday.

With high prices and rising rates putting pressure on young home buyers, existing home sales fell 8.6 percent from a year ago, to a seasonally adjusted annual rate of 5.41 million.

But with supply tight, the housing market remains quite hot, with properties typically on the market for 16 days, an all-time high, and prices have yet to fall.

“Home sales have essentially returned to 2019 levels — pre-pandemic — after two years of gangbuster performance,” NAR chief economist Lawrence Yun said.

“Further declines in sales should be expected in the coming months, given the challenges to housing affordability resulting from the sharp rise in mortgage rates this year,” he said.

Median house prices in May and price change from a year ago are seen for each region

Median house prices in May and price change from a year ago are seen for each region

The average sales price of existing homes in the US set a new record in May at $407,600, up 14.8 percent from a year ago, according to the National Association of Realtors.

The average sales price of existing homes in the US set a new record in May at $407,600, up 14.8 percent from a year ago, according to the National Association of Realtors.

With supply still undesirably low, prices may remain high, even as sellers lower list prices in some areas where bidding wars once raged.

“Existing home sales should continue to slow over the year as mortgage rates climb,” said David Berson, chief economist at Nationwide in Columbus, Ohio.

“But unless there is a deep and sustained economic downturn, home sales may not fall as they did during the housing crisis, which means that prices will continue to rise on average.”

Existing home sales fell in May to their lowest level since June 2020, as sales rebounded after the COVID-19 slump. Sales rose in the Northeast, but declined in the Midwest, West and the populous South.

Median home prices were highest in the West, at $633,800. The median price in the Midwest was $294,500, the South was $375,000, and the Northeast was $409,700.

May sales were mostly closes on contracts signed one to two months ago, before mortgage rates started to rise on the back of a sharp rise in inflation expectations and the Federal Reserve’s aggressive rate hikes.

The average contract rate on a 30-year mortgage rose 55 basis points last week to a 13.5-year high of 5.78 percent, according to data from mortgage bank Freddie Mac.

That was the largest one-week rise since 1987. Interest rates have risen more than 250 basis points since January.

Home sales under $250,000, a price range favored by first-time buyers, have fallen sharply as mortgage rates rise, squeezing young homebuyers

Home sales under $250,000, a price range favored by first-time buyers, have fallen sharply as mortgage rates rise, squeezing young homebuyers

The average contract rate on a 30-year mortgage rose 55 basis points last week to a 13.5-year high of 5.78 percent.  It was the fastest increase in one week since 1987

The average contract rate on a 30-year mortgage rose 55 basis points last week to a 13.5-year high of 5.78 percent. It was the fastest increase in one week since 1987

The report suggested that the housing market was losing speed under the weight of higher borrowing costs.

It was also the most recent indication that the rapid tightening of monetary policy by the US central bank was slowing the general economy.

That was underlined by a separate report from the Chicago Fed on Tuesday that found the National Activity Index fell to 0.01 in May from 0.40 in April, which it says “suggests economic growth slowed in May.”

A zero value for the monthly index has been associated with the growth of the economy with trend growth. Fears of a recession increased after the Fed’s decision last week to raise its key rate by three-quarters of a percentage point, the largest increase since 1994.

The Fed has raised its benchmark overnight interest rate by 150 basis points since March.

The housing market is the sector most sensitive to interest rates. The slowdown could help realign housing supply and demand and slow down price growth.

The annual pace of house price increases has slowed from its peak in early 2021

The annual pace of house price increases has slowed from its peak in early 2021

May sales were mostly closings of contracts signed one to two months ago, before mortgage rates started to rise amid a sharp rise in inflation expectations (file photo)

May sales were mostly closings of contracts signed one to two months ago, before mortgage rates started to rise amid a sharp rise in inflation expectations (file photo)

The average existing home price rose 14.8 percent from a year earlier to a record high of $407,600 in May, crossing the $400,000 level for the first time.

The $250,000-$500,000 price range accounted for 42.0 percent of homes sold last month, with the $500,000-$750,000 segment accounting for 19.3 percent.

Only 19.5 percent of homes sold fell in the sought-after $100,000-$250,000 price range. Double-digit price growth was recorded in the South and West.

But pandemic-induced migration to some areas in the South is slowing, which could tame the price hike.

“The affordability migration is going to lose some momentum as interest rates have risen, making it a bit more difficult to sell homes in those more expensive markets,” said Mark Vitner, senior economist at Wells Fargo in Charlotte, North Carolina.

There were 1.16 million pre-owned homes on the market, following a seasonal monthly increase of 12.6 percent. Supply remained 4.1 percent lower year on year.

The steady monthly improvement could continue as government data last week showed that the number of home completions rose in May to the highest level since 2007.

At May’s sales pace, it would take 2.6 months to deplete the current stock of existing homes, compared to 2.5 months a year ago.

A supply of six to seven months is seen as a healthy balance between supply and demand. 88% of the homes sold in May were on the market for less than a month.

First-time buyers accounted for just 27 percent of sales, which economists say also explains why the double-digit rise in home prices continues even as discounts become more frequent.

All-cash sales accounted for 25 percent of transactions — mostly Wall Street institutions benefiting from rising rent demand.

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