The red hot housing market cooled down again in May with the lack of available homes once again serving to dampen the flames. But prices continued to surge.
Sales of existing homes fell 0.9% last month, continuing a downward trend that began early in 2021, according to the National Association of Realtors (NAR). NAR Chief Economist Lawrence Yun notes the sales activity, which surged during the pandemic, is beginning to return to pre-pandemic levels.
"Lack of inventory continues to be the overwhelming factor holding back home sales, but falling affordability is simply squeezing some first-time buyers out of the market,” Yun said.
Despite declining sales transactions home prices are at a record high, a strong headwind for would-be buyers. The median existing-home price for all housing types in May was $350,300, a 23.6% increase from May 2020.
A report last week by Harvard University’s Joint Center for Housing Studies said home prices are growing at the fastest rate in over a decade with the fastest growth occurring in Western states. It notes Boise, Idaho saw the median home price jump 28% in 12 months while Austin logged a 22% increase.
More worrisome, it says prices are rising faster than incomes. The national price-to-income ratio is at its highest level since 2006, just two years before the housing market crashed.
‘Concerns about a bubble’
“These outsized increases have raised concerns that a home price bubble is emerging,” said Daniel McCue, a senior research associate at the Harvard Joint Center for Housing Studies. “But conditions today are quite different from the early 2000s, particularly in terms of credit availability. The current climb in prices instead reflects strong demand amid tight supply, aided by record-low interest rates.”
The lack of homes on the market has a lot to do with those rising prices. Total housing inventory at the end of May amounted to 1.23 million units.
That’s actually 7% higher than in April but it’s down more than 20% from May 2020. NAR counts only a 2.5 month’s supply of homes on the market. A year ago, there was a 4.6 month’s supply.
In the last 12 months, pressure has increased on the existing home supply because homebuilding has not kept pace with demand. Builders who have been active have been faced with skyrocketing lumber prices while labor and other costs have also risen.
What’s a home shopper to do?
What’s a home buyer to do? Be ready to pounce once an acceptable home comes on the market. That means getting prequalified for a mortgage and being prepared to make a full-price offer with few if any contingencies.
There have been plenty of examples lately of attractive and well-priced homes getting multiple offers on the first day or weekend on the market. In May, NAR says the average home went under contract in just 17 days, down from 26 days a year earlier.
Even at the current record-high prices, first-time buyers were responsible for 31% of sales in May. Individual investors or second-home buyers, who account for many cash sales, purchased 17% of homes in May, the same as in April and up from 14% in May 2020.