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Overview
With mortgage rates once again exceeding the 7% threshold, fewer homes were sold in May, extending the downward trend observed in recent months. Despite the slowdown in home buying activity, prices hit a new record high of $419,300. Even with an increase in homes available for sale, the supply still falls short of meeting housing demand, raising home prices. As soon as mortgage rates fall below the 7%, this additional inventory will likely boost activity in the coming months. NAR expects that inventory will continue to grow steadily from home construction while strong job growth and demographic trends will keep demand strong in the market.
Breaking down by region, in three regions – the Northeast, Midwest, and West - home sales were identical to the previous month. Compared to the same period last year, only the Midwest saw an increase in home sales while all other regions experienced declines. As home prices continue to increase, the Northeast recorded the highest price gains of any region, with the typical home worth 9% more than the previous year.
With more homes being completed and mortgage rates likely to fall below 7% after summer, housing market activity is expected to gain momentum in the following months.
The Federal Reserve maintained its short-term interest rate at 5.5% in May, unchanged since August 2023. A further slowdown of inflation expected in the following months may enable the Fed to cut rates in the second half of the year. The Fed’s goal is to reduce inflation to its 2% average target.
The U.S. labor market rose faster than the average monthly gain of 232,000 over the past 12 months, adding 272,000 new jobs in May. However, the unemployment rate rose 4% after staying below that threshold for 27 months. Employment in construction changed little in May (21,000 new jobs), in line with its prior 12-month average monthly gain of 21,000.
Inventory has consistently been increased since the beginning of the year. In May, inventory of unsold listing increased 5.8% compared to the previous months, standing at 1.28 million homes for sale. Compared to last year, inventory levels were up 18.5%. However, even with this increase, demand continues to outpace housing supply, leading to rising home prices.
