U.S. Existing Home Prices Suffer Largest Drop Since December 2011

The numbers: Sales of previously-owned homes in the U.S. rose slightly in May amid a shortage of homes for sale and high mortgage rates but the median price for an existing home fell 3.1%, the largest drop since December 2011.

Sales of existing homes in the U.S. increased 0.2% to an annual rate of 4.3 million in May, the National Association of Realtors said Thursday.

That’s the number of homes that would be sold over an entire year if sales took place at the same rate in every month as it did in May. The numbers are seasonally adjusted.

The rise in sales exceeded what economists on Wall Street were expecting. They forecast existing-home sales to total 4.25 million in May.

Compared with May 2022, home sales were down 20.4%.

Key details: The median price for an existing home fell 3.1% from last May to $396,100 this year. The drop is the largest since December 2011, when home prices dropped 3.9%.

Home prices have dropped for the fourth month in a row on an annual basis. Home-price growth peaked in May 2021, when it grew 25.2% annually.

The number of homes on the market rose 3.8% in May to 1.08 million units. That’s the lowest number of homes—particularly single-family homes—that have been on the market during the month of May, since the NAR began tracking data in 1983.

Homes listed for sale remained on the market for 18 days on average, down from 22 days in April. Last May, homes were on the market for just 16 days.

Sales of existing homes across the country were mixed–the South and West saw home sales rise, while the Midwest and Northeast saw sales dip in May.

All-cash buyers made up 25% of sales. The share of individual investors or second-home buyers was 15%. About 28% of homes were sold to first-time home buyers.

Big picture: The housing market is broadly recovering, but it’s a slow one.

Buyers are accepting the new reality of mortgage rates above 6%, but the market is still hampered by a serious shortage of homes for sale.

A separate report from Realtor.com on Thursday noted that the total number of homes for sale is likely to be at its lowest point since 2012.

While builders are filling the gap with new buildings and responding to demand from home buyers, it’s not enough to meet demand. Plus, new homes are much more expensive than resales. The median price of a new home sold in April was $420,800, nearly $25,000 higher than a previously-owned home.

What the realtors said: Multiple offers are back, Lawrence Yun, chief economist at the National Association of Realtors, said, even as home prices are coming down, due to the shortage of homes for sale.

“One-third of properties are getting multiple offers,” he said, “and that is due to simply a lack of inventory.”

What are they saying? Even though mortgage rates are expected to fall further, which could increase home sales, “a continued lack of inventory and weakening economy rules out a strong recovery,” Capital Economics said in a note.

Market reaction: Stocks were up in early trading on Thursday. The yield on the 10-year note rose above 3.7%.

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