US home prices top $400,000 for first time

• The median US home price surpasses $400,000 for the first time.
• Existing home sales decrease for the fourth consecutive month in May.
• Sales pace slowed to a seasonally adjusted annual rate of 5.41 million last month, which was 8.6 percent lower than May 2021.

The median US home prices surpassed $400,000 for the first time, causing existing home sales to decrease for the fourth consecutive month in May.

The median sales price reached $407,600, a 14.8 percent increase from the previous year, according to the National Association of Realtors (NAR).

The sales pace slowed to a seasonally adjusted annual rate of 5.41 million last month, which was 8.6 percent lower than May 2021, the report said.

“Home sales have essentially returned to the levels seen in 2019 — prior to the pandemic — after two years of gangbuster performance,” said NAR Chief Economist Lawrence Yun.

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“Further sales declines should be expected in the upcoming months given housing affordability challenges from the sharp rise in mortgage rates this year,” he said.

30-year fixed mortgage rates rose to 5.23 percent in May from 4.98 percent in April, according to Freddie Mac, as the Fed raised the benchmark borrowing rate to tame inflation.

According to the data, the sales slowdown prompted the inventory of properties on the market to increase 12.6 percent to a 2.6-month supply, barely above the level in May 2021.

Bargain borrowing rates fueled the pandemic’s strong demand for home purchases, driving prices ever higher as builders tried to keep up due to supply backlogs for lumber and other commodities and labour scarcity.

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Now, “the market is adjusting, rapidly and painfully, to the surge in mortgage rates, which has pushed up the monthly payment on a median home by more than 50 percent since last August,” said Ian Shepherdson of Pantheon Macroeconomics.

He said prices normally would not begin to fall until inventories grew to a seven-month supply, but “the speed of the dislocation in the market in recent months, thanks to the suddenness of the spike in rates, means that a period of falling prices is a good bet.”

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Sales fell throughout the United States, except in the Northeast, while prices rose nationwide.

All-cash buyers accounted for a quarter of sales in May, NAR said.

Yun noted trends in condominium sales may indicate that “the preference towards suburban living over city life that had been present over the past two years is fading with a return to pre-pandemic conditions.”