US home prices just hit a record high. Americans are still buying
By Bryan Mena, CNN
Washington (CNN) — Homes in America are the most expensive they’ve ever been, according to one measure.
The median price of a previously owned US home climbed for the eleventh consecutive month in May, up 5.8% from a year ago, to $419,300, the National Association of Realtors said Friday. That’s the highest price ever recorded by NAR.
“Home prices reaching new highs are creating a wider divide between those owning properties and those who wish to be first-time buyers,” NAR’s chief economist Lawrence Yun said in a release. “Still, first-time buyers in the market understand the long-term benefits of owning.”
Housing affordability remains in the gutter: In addition to sky-high home prices, mortgage rates are still higher than anything seen in the decade before 2022. There still aren’t enough homes in the market to keep up with demand, despite some improvements in recent months.
The situation could improve somewhat later this year, when the Federal Reserve is expected to begin paring back interest rates from a 23-year high, which should bring down mortgage rates. But Fed officials have penciled in just one rate cut for this year, and the days of ultra-low interest rates are long gone. Economists don’t expect the average mortgage rate to fall below 6% in 2024.
Recent research from Zillow shows that in order for a median-income household to afford a monthly mortgage payment on the typical US home, it would need to save up more than $127,000 for a down payment. That’s roughly double the median salary of a US worker.
Potential homebuyers are indeed facing a tough market, but that doesn’t seem to be deterring some: Sales of previously owned homes in the US are up from the decades lows in the fall and only edged lower by 0.7% in May to a seasonally adjusted annual rate of 4.11 million.
What’s going on with housing supply?
When supply doesn’t keep up with demand, it pushes up prices. That’s been the case in the US housing market for decades now.
However, there have been some steps in the right direction: Total housing inventory has steadily increased throughout this year, according to NAR data. Inventory at the end of May stood at 1.28 million units, 6.7% higher from April and up 18.5% from a year ago.
Homeowners who locked in a low rate before the Fed began to hike in 2022 have been unwilling or unable to sell their homes because of months of elevated mortgage rates. But the recent growth in inventory may mean that homeowners are finally parting with their homes out of necessity because of life events such as marriage, divorce or new children, NAR’s Yun has said.
New home construction also contributes to housing supply, but high interest rates seem to have pumped the brakes on homebuilding. Housing starts fell in May to their lowest level since 2020, according to government statistics released Thursday, dropping by 5.5% from April. Building permits, seen as a forward indicator of future construction, came in below economists’ expectations.
This story is developing and will be updated.
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