The State of the Housing Market: Slower Sales and Tight Supply

The housing market has experienced a slowdown in sales and a critical shortage of available homes, according to recent data from the National Association of Realtors (NAR). In this blog post, we'll delve into the key findings of the report, exploring the factors contributing to the sluggish sales pace and the ongoing supply-demand imbalance in the housing market.

Sales of previously owned homes remained flat in May compared to April, with a modest 0.2% increase to a seasonally adjusted, annualized pace of 4.30 million units. However, when compared to the previous year, sales were down by a significant 20.4%. The current sluggishness in sales can be attributed to several factors, including high prices, elevated mortgage rates, and a critical shortage of available homes for sale.

At the end of May, there were just 1.08 million homes on the market, reflecting a 6.1% decrease compared to the supply in May of the previous year. With the current sales pace, this represents a three-month supply, significantly below the balanced market threshold of six months. Before the COVID-19 pandemic, the market had nearly double the number of homes available. Lawrence Yun, the chief economist for the NAR, highlighted that while newly constructed homes are experiencing robust sales due to abundant inventory, existing-home sales activity is declining due to supply levels being roughly half of what they were in 2019.

May sales figures are based on closings that likely occurred in March and April. During that period, mortgage rates experienced some volatility. The average contract interest rate for the popular 30-year fixed mortgage started March above 7%, briefly dropped close to 6%, and then rose again, averaging around 6.5% throughout most of April. Despite these fluctuations, strong demand has prevented a significant drop in home prices. The median price of an existing home sold in May was $396,100, representing a 3.1% decrease compared to May 2022. While prices rose in the Northeast and Midwest, they fell in the South and West.

The market continues to experience a tug-of-war between strong demand and limited supply, resulting in a competitive landscape. Nearly a third of properties sold above the list price, and homes remained on the market for an average of 18 days in May. Although this was a decrease from April, it was higher compared to May 2022. Lower-priced homes have seen the most activity, while sales of higher-priced homes have experienced greater declines. The market also witnessed a decline in the number of homes available for sale, with listings down by 24% compared to the previous year.

The summer housing season is following a similar pattern to the spring, with slower sales due to the ongoing supply shortage. Despite the challenges, early stage buying services, such as tour requests, continue to show a year-over-year increase of 11%. However, new listings are down by 24% from the previous year, exacerbating the supply-demand imbalance. While the outlook for 2023 suggests a gradual decline in mortgage rates and a stabilization of high housing costs, the scarcity of sellers may pose challenges for buyers in the months ahead.

The housing market's slower sales and tight supply present ongoing challenges for both buyers and sellers. The combination of elevated prices, elevated mortgage rates, and limited inventory has created a competitive environment. As we move forward, it is important to closely monitor market conditions and adapt strategies accordingly. Whether you're buying or selling a home, staying informed and working with knowledgeable professionals can help navigate the evolving landscape of the housing market.