The National Association of Realtors said home sales were down 2.8% in May compared with May 2023. (Jean J. Puskar/The Associated Press)
LOS ANGELES — U.S. existing home sales fell for a third straight month in May as rising mortgage rates and record home prices discouraged would-be buyers at the housing market's hottest time.
The National Association of Realtors said Friday that existing home sales last month fell 0.7% from April to a seasonally adjusted annual rate of 4.11 million.
Sales also fell 2.8% from May of last year. The latest sales were slightly above the 4.07 million units economists had expected, according to FactSet.
“We thought we would see an economic recovery this spring, but that hasn't happened,” said Lawrence Yun, NAR's chief economist.
Despite the decline, prices have risen year-over-year for 11 straight months. The national average sales price rose 5.8% year-over-year to $419,300, the highest price since 1999. It's also up 51% from five years ago.
Home prices rose despite slowing sales and property supply hitting a four-year high.
“It's a strange phenomenon,” Yoon said. “Home sales activity is slow, prices are at all-time highs, yet homes still seem to have multiple buyers.”
The U.S. housing market has been in a tailspin since mortgage rates began to rise from pandemic-era lows in 2022. Existing home sales fell to a nearly three-decade low last year as the average rate on a 30-year mortgage jumped to a 23-year high of 7.79%, according to mortgage buyer Freddie Mac.
The average rate on a 30-year mortgage has hovered around 7% this year, after better-than-expected economic and inflation reports forced the Federal Reserve to keep short-term interest rates steady at their highest levels in more than two decades.
Federal Reserve officials said last week that inflation has fallen further toward their 2% target in recent months, signaling they expect to cut interest rates once this year. The Fed previously projected up to three cuts in 2024, raising hopes in the housing market that mortgage rates might have fallen further by now.
“The Federal Reserve's interest rate cuts were expected but have not been implemented and continue to be delayed, which may be slowing the recovery in home sales,” Yoon said.
Rising mortgage rates are causing many homeowners who bought or refinanced their homes more than two years ago to hold off on selling now because they don't want to give up fixed-rate mortgages at less than 3 or 4 percent. Real estate experts call this trend the “lock-in” effect.
According to Realtor.com, as of the end of last year, more than 50% of homes with mortgages had interest rates of 4% or less, and 87% had interest rates of 6% or less.
The NAR said there were about 1.3 million homes unsold as of the end of last month, up 6.7% from April and up 18.5% from May of last year.
That equates to a 3.7 month supply at the current sales pace, compared to a 4 to 5 month supply in a more balanced market between buyers and sellers.
First-time homebuyers who don't have the equity to put toward a down payment continue to struggle to enter the housing market. They accounted for 31% of all home sales last month, down from 33% in April but up from 28% in May of last year. Historically, they have made up 40% of sales.
“We'll see if this translates into increased home sales,” Yoon said. “Right now, it hasn't, but at least inventory is starting to ease.”