In May, home prices in the United States reached an unprecedented level despite a downturn in demand and sales activity, as reported by The Wall Street Journal. The national median home price now stands at $419,300, marking a 5.8% increase from the previous year.
This new record is primarily driven by homeowners’ reluctance to list properties due to high mortgage rates. Despite the decline in housing demand, affordability issues have led to a 0.7% decrease in the sales of previously owned homes from April to May. However, this decline in sales has not been sufficient to balance the limited housing inventory, resulting in higher prices.
Lawrence Yun, chief economist for the National Association of Realtors (NAR), described the situation as “somewhat of a strange phenomenon, where we have low home-sales activity yet prices are hitting record highs.” Rising prices combined with elevated mortgage rates have made homeownership increasingly difficult for working-class Americans.
To illustrate the shift, the median home price in February 2020, just before the COVID-19 pandemic, was $270,400, with a 30-year fixed-rate mortgage averaging 3.89%. Today, the median price has surged to $419,300, which is 1.55 times higher, and the average 30-year fixed-rate mortgage has risen to 6.87%, more than 1.75 times the pre-pandemic rate, according to NAR data.
However, experts predict that the rapid increase in home prices may slow in the coming months. Affordability concerns have driven consumer confidence to near-record lows, with only 14% of respondents in a Fannie Mae survey believing it is a good time to buy a home. This sentiment matches the record low from shortly after the 2008 financial crisis. Consequently, homes are spending more time on the market as potential buyers wait for better mortgage rates, gradually increasing housing inventories.
Since President Joe Biden took office in January 2021, inflation has risen by 20.1%, with annual inflation peaking at 9% in June 2022. To combat this Biden-era inflation, the Federal Reserve increased the federal funds rate from 0%-0.25% to 5.25%-5.5%, leading to a significant rise in mortgage costs and other borrowing expenses for Americans.
The combination of soaring home prices and high mortgage rates presents a challenging landscape for those looking to enter the housing market. As inventories begin to rise, there may be some relief in prices, but the overall affordability remains a pressing concern for many Americans.
