Prices for existing U.S. homes extended their climb in June, with the median rising to a record despite the fifth straight month of falling sales. The data indicate higher mortgage rates are dampening homebuyer interest, though not enough to restrain prices.
The average price of existing homes sold in June grew to $416,000, a 13.4% rise from one year ago and up from $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, down from 5.97 million last year. Sales have fallen every month since peaking at 6.49 million in January.
“Falling housing affordability continues to take a toll on potential home buyers,” Lawrence Yun, chief economist at NAR, said in a statement. “Both mortgage rates and home prices have risen too sharply in a short span of time.”
Mortgage rates on 30-year loans jumped to 6% in June from a historic low near 3% late last year, responding to the Federal Reserve’s tightening monetary policy. The average monthly mortgage payment is more than $600 higher than it was one year ago, according to Zillow, coming in at $1,613.
“There’s just fewer people who can afford to purchase a home these days,” says Jessica Lautz, vice president of demographics and behavioral insights at NAR. The rising costs are especially hurting first-time buyers, including minorities and Millennials, Lautz added. “We expect and we hope that home prices will level out towards the end of the year.”
Prices have been on a tear 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 forecasting a recession, demand is cooling. The rest of the housing industry has taken notice. Construction industry sentiment is the worst it’s been since May 2020, according to a housing market index published by the National Association of Home Builders.
This falling demand could eventually curb price gains, perhaps to single-digit year-over-year numbers, says Taylor Marr, deputy chief economist at Redfin, a real estate brokerage. Marr and other experts have said a full-on housing crash is unlikely, but could happen in some markets. Marr says the locales with the highest risk are those “that have been marked by an influx of migration from California, such as Boise, Denver, Phoenix,” but he added that a stable rebalancing of prices is more likely.
Existing housing is selling faster than ever despite the fall in overall transactions, with the average home sitting on the market for a record low 14 days. One positive aspect of slowing purchasing is that the country is building up inventory of homes for sale. Low supply has been both a major cause of rising prices and an outcome of the increased demand.
“Finally, there are more homes on the market,” Yun said.
Yun added that he will be watching inflation data, as that will play a key role in the housing market. “If consumer price inflation continues to rise, then mortgage rates will move higher,” Yun said. “Rates will stabilize only when signs of peak inflation appear.”
June data for new-home sales is scheduled to be released on Tuesday, with economists expecting a slight decline from May. Last month saw a small increase to 696,000 new homes sold.