Home Sales Eke Out Gain Despite Inventory Shortage

Existing-home sales increased slightly in May, even as buyers continue to face severely limited options on the market. Total existing-home sales—completed transactions including single-family homes, townhomes, condos and co-ops—rose 0.2% month over month in May, the National Association of REALTORS® reported Thursday. Still, sales are down 20.4% from a year ago as low inventory restricts market activity.

“Mortgage rates heavily influence the direction of home sales,” says NAR Chief Economist Lawrence Yun. “Relatively steady rates have led to several consecutive months of consistent home sales.” The 30-year fixed-rate mortgage averaged 6.69% as of June 15, up from 5.78% a year ago, Freddie Mac reports.

Lean housing inventory continues to hamper the existing-home market. While inventory ticked up slightly by 3.8% last month, it remains down by 6.1% compared to a year ago. Unsold inventory remains at a brisk three-month supply pace.

Realtor.com® economist Danielle Hale points to a “mortgage rate lock-in effect” that is making many homeowners reluctant to sell. Mortgage rates are more than double what they were about two years ago. “The vast majority of homeowners locked in low rates during the pandemic and aren’t particularly excited to give them up in order to buy a new home unless they really need to move for personal reasons,” Hale says.

Unlocking More Inventory

Buyers who can’t find what they need in the existing-home market are looking for property elsewhere. “Newly constructed homes are selling at a pace reminiscent of pre-pandemic times because of abundant inventory in that sector,” Yun says. On the other hand, “existing-home sales activity is down sizably due to the current supply being roughly half of the level of 2019.”

Construction of single-family homes reached an 11-month high in May, the Department of Housing and Urban Development and the Census Bureau reported earlier this week. “Mirroring rising builder sentiment, single-family permits and starts increased in May as builders boosted production to meet unmet demand,” says Alicia Huey, chairperson of the National Association of Home Builders. “Despite elevated interest rates that make the cost of housing more expensive, the lack of existing home inventory in most markets is leading to increased demand for new construction.”

Snapshot of Existing-Home Sales

As the housing market has slowed over the past year, some buyers who were sidelined during the pandemic-era housing frenzy are returning. For example, the percentage of first-time home buyers ticked up slightly in May. In some cases, buyers are finding slightly lower home prices and less competition.

NAR’s May existing-home sales report showed the following additional key indicators to gauge the housing market:

• Home prices: The median existing-home price for all housing types was $396,100, a drop of 3.1% compared to a year earlier ($408,600). Though home prices posted gains in the Northeast and Midwest, they fell in the South and West.
• Days on the market: Seventy-four percent of homes sold were on the market for less than a month. Overall, properties typically remained on the market for 18 days in May, down from 22 days in April—but up from 16 days a year earlier.
• First-time buyers: First-time buyers comprised 28% of home sales, up from 27% in May 2022.
• All-cash sales: All-cash sales accounted for 25% of transactions, essentially identical to one year ago. Individual investors or second-home buyers tend to make up the biggest bulk of cash sales. They purchased 15% of homes in May, down slightly from 16% the previous year.
• Distressed sales: Foreclosures and short sales comprised 2% of sales, essentially unchanged compared to a year ago.

Breakdown By Region

Existing-home sales were mixed among the four major regions nationwide in May, with the South and West posting gains while the Northeast and Midwest saw slight pullbacks. Regardless, sales were down year-over-year in all four regions. Here’s a closer look at how home sales fared across the country in May, according to NAR’s report.

• Northeast: Home sales fell 2% from April, reaching an annual rate of 500,000. That is down 25.4% from a year earlier. Median price: $439,000, up 2.5% from one year ago.
• Midwest: Sales dropped 2.9% from a month ago, settling in at an annual rate of 990,000. Home sales are down 20.8% from the previous year. Median price: $298,000, up 1.1% from May 2022.
• South: Sales rose 1.5% from April, reaching an annual rate of 2.02 million. Sales are down 16.5% from the prior year. Median price: $361,400, down 2.7% from May 2022.
• West: Sales increased 2.6% from the previous month, settling in at an annual rate of 790,000. Home sales have fallen 25.5% compared to a year ago. Median price: $596,500, down 5.7% from May 2022.