Record-High Home Prices Continue Amid Worsening Supply Shortage
In June, U.S. home prices reached near record highs, exacerbating the ongoing shortage of available inventory and further hindering prospective homebuyers from entering the market.
According to a recent report by real estate brokerage firm Redfin, median home prices surged by 1.9% in June compared to the previous month, reaching $426,056. These prices now stand merely 0.6% lower than they were a year ago and 1.5% lower than the peak reached in May 2022.
“The current state of the housing market is exceptional, with a significant demand for homes despite a limited number of transactions taking place,” remarked Daryl Fairweather, Chief Economist at Redfin.
The primary contributing factor to this situation is the scarcity of homes available for sale. Homeowners who secured low mortgage rates before the onset of the pandemic have been hesitant to sell, given the persistently high rates, thereby reducing the options for potential buyers.
A recent report from Realtor.com revealed that the number of homes on the market in June decreased by over 47% compared to pre-pandemic levels in early 2020.
Fairweather added, “Sellers are receiving multiple offers if their homes are reasonably priced and situated in sought-after areas, despite the limited number of buyers. This scarcity stems from the extremely limited housing options. As homebuyers become more accustomed to elevated mortgage rates, an increasing number are entering the market, intensifying the perceived competitiveness.”
Mortgage Rates Rise, Housing Supply Shrinks, and Prices Soar Amidst Market Adjustments
The Federal Reserve’s aggressive campaign of interest rate hikes has caused mortgage rates to surpass 7%, marking the first time in nearly two decades. This has had a cooling effect on the previously robust housing market. However, despite slow rate retractions, home prices have once again begun to rise as buyers adapt to the new rates and compete for limited inventory.
Currently, rates for the popular 30-year fixed mortgage hover around 6.96%, as reported by Freddie Mac. This figure is well above the 5.51% recorded a year ago and the pre-pandemic average of 3.9%.
Although a gradual decline in mortgage rates is anticipated as signs of high inflation dissipate, the decrease is not expected to be significant enough to prompt a “critical mass of sellers” to reenter the market in the near future. Consequently, housing supply is projected to remain low. The report suggests that when rates eventually experience a more substantial decline, prices will likely surge as more buyers come off the sidelines.
In June, the total number of homes available for sale plummeted by 15% compared to the previous year, reaching an all-time low. Moreover, new listings experienced a decline of over 30% year-over-year, totaling approximately 450,000. This represents the lowest level and largest annual decline on record, excluding April 2020, which marked the onset of the pandemic.
A separate report from Black Knight reveals that housing inventory levels have plummeted in 95% of major markets across the country. The most significant declines occurred in Western cities such as Phoenix, Arizona; Boise, Idaho; Ogden, Utah; Colorado Springs, Colorado; and San Francisco.
As of May, more than half of the nation’s 50 largest housing markets, primarily concentrated in the Midwest and Northeast, have either returned to their prior home price peaks or reached new all-time highs.
