Existing-home sales decreased on a monthly basis again in May, dropping 0.9% from April to a seasonally adjusted annual rate of 5.8 million, the National Association of Realtors (NAR) reported.
The decrease, while modest, marked the fourth consecutive month-over-month drop in existing-home sales, falling to the slowest annual pace since June last year. Activity continues to be hindered by low supply and the affordability crunch it is causing, particularly within entry-level price ranges.
“Home sales fell moderately in May and are now approaching pre-pandemic activity,” said Lawrence Yun, NAR’s chief economist. “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.”
The median price of existing homes sold in May climbed to $350,300, up a whopping 23.6% annually to reach a record high. For context, the median price was around $295,000 in 2020 and just under $270,000 in 2019. Prices have now risen year over year every month since March 2012, a streak of 111 straight months.
Despite the slowdown in activity, existing-home sales do remain at a very strong pace. Year over year, sales are up 44.6% from one year ago, thanks in part to the COVID-19 pandemic dampening 2020’s spring homebuying season. Competition remains stout, with properties remaining on the market for 17 days in May, unchanged from April and down from 26 days in May last year.
Still, it’s clear that the one-two punch of rising prices and short supply is taking its toll on prospective homebuyers. Wells Fargo economist Mark Vitner noted that data from both the University of Michigan and Conference Board revealed that plans to purchase a home saw a sharp May drop.
“While a pullback was expected, the magnitude of the drop was eye-opening,” Vitner said in Wells Fargo commentary, “and supports our thesis that the pandemic-driven tailwind home sales have enjoyed appears to be lessening. With much of the adult population vaccinated and fears of contracting COVID significantly diminished, workers are returning to the office or workplace sooner than had been expected. Moreover, much of the speculation about how many workers would work remotely indefinitely appear to have been greatly exaggerated. … Demand for homes in distant suburbs and exurbs appears to be softening a notch, while demand for rental apartments and homes in close-in neighborhoods is strengthening.”
And first-time buyer share has stagnated at 31%, flat from April and down from 34% in May 2020.
Yun does expect some relief ahead for homebuyers, calling the market outlook “encouraging.” Joel Kan, associate vice president of economic and industry forecasting at the Mortgage Bankers Association, agreed, noting that May’s 7.0% increase in for-sale inventory from April “should slightly help price conditions.”
Unsold inventory sits at a supply of 2.5 months at the current sales pace, still down substantially from 4.6 months in May 2020, but up slightly from April’s 2.4 month supply.