Monthly housing market trends: Rates high, prices shifting

As spring unfolds, the housing market presents a mixed picture. While median home prices saw a modest 0.9 percent annual increase in May, various indicators suggest a sluggish and uncertain landscape. Inventory growth has slowed for three consecutive months, with fewer potential sellers eager to enter the market. Homes listed for sale are also spending more time waiting for buyers compared to the previous year. Here’s a closer look at the dynamics shaping the May 2023 housing market.

The Big Picture:

Recent inflation data, as per the Consumer Price Index (CPI) released in May, reflects a rate of 4.9 percent. This marks a significant drop from the 6.4 percent at the beginning of the year, yet it still surpasses the Federal Reserve’s target of 2 percent. Housing remains a substantial contributor to overall inflation, with the shelter index surging by 8.1 percent over the past year.

In response, the Federal Reserve has persistently raised interest rates to curb inflation. In May, they raised rates for the 10th consecutive time, keeping mortgage interest rates in relatively high territory. While there’s speculation about the possibility of rate hikes coming to an end, the Fed’s next moves, slated for mid-June, remain uncertain.

Despite high interest rates creating less than ideal conditions for both buyers and sellers, a housing crash remains highly improbable. The current market adjustments are nuanced and corrective, in stark contrast to the housing bubble of 2008, partly due to much stricter lending standards in place today.

Monthly Housing Market Metrics:

• Home Sales: Existing-home sales witnessed a 3.4 percent month-over-month decline between March and April 2023, totaling an annual rate of 4.28 million according to data from the National Association of Realtors (NAR). However, the year-over-year dip is more substantial, down by 23.2 percent.
• Median Prices: In April, the nationwide median home price was $388,800, marking the third consecutive month of year-over-year declines following an extended period of growth.
• Home Price Index: The Case-Shiller U.S. National Home Price NSA Index, released at the end of May, reported a housing price increase for the second consecutive month. Home-price growth rose by 1.3 percent in March 2023, showing progress from February’s more modest 0.2 percent increase.
• Mortgage Rates: As of early June, Bankrate’s national survey of large lenders indicates an average mortgage interest rate of 6.91 percent for a 30-year loan.

Housing Market for Sellers:

While late spring and early summer typically see heightened real estate activity, this year’s market is bucking that trend. NAR data from mid-May reveals declining existing-home sales in all four major regions, both month-over-month and year-over-year. The West is experiencing the most significant market cooling, down over 30 percent from last year, followed by the Northeast. Nevertheless, these regions command the highest median prices. For instance, the West boasts a median price of $578,200, and the Northeast comes in at $422,700.

In some areas, where prices started at a steep point, declines have been sharp. For example, in San Francisco, the median sale price has dropped by 17.8 percent since April of the previous year, yet it still stands at a substantial $1.325 million.

Despite these shifts, current conditions favor sellers due to a limited supply of inventory. The country currently holds a mere 2.9-month supply, far short of the 5 to 6 months required for a balanced market, keeping sellers in control for the time being.

Housing Market for Buyers:

High mortgage interest rates are posing a challenge for buyers, reducing their purchasing power. Additionally, inventory is constrained in many areas, putting prospective buyers in a wait-and-see position.

However, there is a silver lining for buyers in the form of easing prices in popular markets compared to the previous year. For instance, in Seattle, prices have dropped about 9 percent year-over-year, and the trend is similar in other cities like Denver, Las Vegas, and San Diego.

Furthermore, the metric of “days on market” is working in favor of buyers. In April, the typical property spent 22 days on the market, which is 17 days longer than the previous year. This extended period can potentially lead to more negotiation room for buyers.

Next Steps:

For those venturing into the real estate market this spring, thorough research is crucial. Market dynamics are intricate and evolving rapidly, varying significantly by location. Sellers should gain a realistic understanding of their home’s value under current circumstances, while buyers should carefully assess their affordability. Obtaining preapproval for a mortgage can offer valuable insights into the amount a lender would be willing to provide.