US existing home prices continued their ascent in June, with the median hitting a record high despite the fifth straight month of declining sales. The data indicates that higher mortgage rates are dampening homebuyer interest, but not enough to limit prices.
The average price of existing homes sold in June rose to $416,000, up 13.4% from a year ago and $407,600 in May, according to data released Wednesday by the National Association of Realtors. (NAR). The June report marks 124 consecutive months of year-over-year price growth, a record streak since NAR began collecting data.
Existing home sales fell 5.4% from May to a seasonally adjusted annual rate of 5.12 million, from 5.97 million last year. Sales have fallen every month since peaking at 6.49 million in January.
“The decline in housing affordability continues to weigh on potential buyers,” Lawrence Yun, chief economist at NAR, said in a statement. “Mortgage rates and home prices have risen too steeply in a short time.”
Mortgage rates on 30-year loans jumped to 6% in June, from an all-time low of nearly 3% at the end of last year, in response to the Federal Reserve’s monetary policy tightening. The average monthly mortgage payment is more than $600 higher than it was a year ago, according to Zillow, standing at $1,613.
“There are just fewer people who can afford to buy a home these days,” says Jessica Lautz, vice president of demographics and behavioral insights at NAR. Rising costs are particularly hurting first-time buyers, including minorities and millennials, Lautz added. “We expect and hope that house prices will stabilize towards the end of the year.”
Prices have been falling since the early days of Covid-19, as high savings and government stimulus combined with increased demand for larger homes from Americans increasingly working from home. Now, with the Fed raising interest rates at the fastest pace in decades and many economists predicting a recession, demand is cooling. The rest of the housing industry has taken notice. Construction industry sentiment is the worst since May 2020, according to a housing market index released by the National Association of Home Builders.
That drop in demand could eventually dampen price gains, possibly to single-digits year-over-year, says Taylor Marr, deputy chief economist at Redfin, a real estate brokerage firm. Marr and other pundits said a full property crash is unlikely, but could happen in some markets. Marr says the localities most at risk are those “that have been marked by an influx of migrants from California, like Boise, Denver, Phoenix,” but he added that a stable price rebalancing is more likely.
Existing homes are selling faster than ever despite the drop in overall transactions, with the average home remaining on the market for a record 14 days. A positive aspect of the slowdown in purchases is that the country is building up an inventory of homes for sale. Weak supply was both a major cause of higher prices and a result of increased demand.
“Finally, there are more houses on the market,” Yun said.
Yun added that he will monitor inflation data as it will play a key role in the housing market. “If consumer price inflation continues to rise, then mortgage rates will rise,” Yun said. “Rates will only stabilize when signs of peak inflation appear.”
June data on new home sales is due out on Tuesday, with economists expecting a slight decline from May. Last month saw a small increase to 696,000 new homes sold.