A for sale sign outside a New Youk City brownstone on April 11, 2024. U.S. home sales continued to fall in June as median home prices hit a record high for the second month. Photo by Spencer Platt/Getty Images
U.S. median home prices hit a record high for the second month in a row as sales continued to fall in June, with potential buyers lying in wait for lower mortgage rates, according to a new report.
Existing home sales fell 5.4% from May to June, when median home prices reached their highest level since prices were first tracked by the National Association of Realtors in 1999.
The median price rose the most in the northeast region, where prices were 9.7% than a year earlier, while the May-to-June drop in existing home sales was sharpest in the Midwest, at 8% in the Midwest, according to the report released last week.
The Census Bureau and the Department of Housing and Urban Development, meanwhile, reported on Wednesday that new home sales fell 0.6% from May to June, and were 7.4% lower than new home sales a year ago. That report said the median price of a new home was $417,300, and $426,900 for an existing home. Housing experts say that new homes have usually sold for much more than existing homes, and the flip may reflect changing demands for smaller and more affordable homes.
Despite that change, these two measures have shown that home prices still remain out of reach for many and that in response, sales have been slow. What is driving these prices and when will they abate? Housing economists say there are many factors at play, including Fed policy and an aging population.
Why are home sales low and home prices high?
High demand for homes and lower inventory levels have contributed to higher home prices in recent years, which combine with high mortgage rates to cause this housing market shift. The 30-year fixed mortgage rate was 6.78% as of July 25, according to Freddie Mac.
Matthew Walsh, economist at Moody’s Analytics, said low housing affordability and the “persistently high” mortgage rate is contributing to cooling housing activity. Unless housing becomes more affordable soon, he said he expects to continue to see lower existing home sales.
Selma Hepp, chief economist at CoreLogic, said prospective buyers “are very responsive to mortgage rates and with the information being so readily available and the anticipation that mortgage rates are going to come down, I think that’s keeping people on the sidelines.”
But she said homebuyers face a double-edged sword. When mortgage rates do come down, there will be a lot of pent-up demand that will also put pressure on home prices. A rise in cash buyers could also be pushing prices higher, Hepp said. All-cash buyers were 28% of home transactions in June.
“A lot of these cash buyers are actually baby boomers who maybe cashed out on their existing home. We do know that home equity is at an all-time high and if you’re moving from a very expensive home price area to a lower-priced area, you obviously will have a lot of cash,” she added.
Housing inventory is changing but is it enough?
One bright spot for homebuyers is that total housing inventory has been rising. Inventory increased 3.1% from May and was up 23.4% from a year ago according to the June existing home sales report. Walsh said some households may be deciding they can’t wait to make a life change and are moving out of homes for larger or smaller options.
“It’s a lot of households that can no longer postpone plans to sell, whether that’s because their household is expanding because they’re having children or it’s shrinking and they need to sell their larger home in the Northeast and move to a smaller home to retire in the South,” Walsh said. “They can no longer put up with the homes that they’re in and sacrifice their low mortgage rate for a higher rate.”
Still, Hepp said the inventory is far lower than prepandemic levels and where demand has picked up — in Boston, New York, and Chicago, for example — there’s not a proportionate increase in the supply of housing.
Some homebuyers may be watching the Fed’s plans to cut interest rates, which affect mortgage rates, for some financial relief. A majority of economists say they believe the Fed will cut rates in September and December, according to a recent Reuters poll. Cutting rates may help bring some buyers back into the market and pump up inventory, but the effect will likely not be strong enough to bring home sales back to where they were before the pandemic, Walsh added.
What is the government doing?
The Biden administration announced a flurry of proposals this month to make housing more affordable, some of which would impact homebuyers as well as the repurposing of public lands in Nevada to bring at least 15,000 affordable rental and homeownership units to the area. In February, the White House also announced the opening of grant applications for assistance to homeowners to replace dilapidated homes.
Donald Trump, the Republican nominee for president, said at a July rally in Iowa that he would address problems in the housing market through cutting interest rates, according to Newsweek. Although presidents nominate the chair of the Fed for a four-year term, they do not have power over whether the Fed cuts rates.
States have been pursuing their own policies to improve housing inventory and affordability, including Utah and Oregon, which passed legislation to use funds for loans to developers who plan to build more affordable homes. A Maryland bill signed into law by Gov. Wes Moore (D) in May would push property owners to make plans for vacant properties by letting cities raise taxes on those properties.