The number of properties sold in May rose by 0.7% compared to April, according to a report by the National Association of Realtors.
That marked the end of a six-month low-demand streak. Sales were still 13.6% lower than it was exactly a year ago.
Buyers have been observing the rising mortgage rates since the beginning of the year to their dismay until the rates pulled back slightly in May, and experts believe that might have accounted for the slight increase in sales.
Other factors attributed to the sudden increase were ore supply and increased total active inventory as some homes stayed longer on the market.
According to Mortgage News Daily, the average fixed mortgage of 30 years rose to 5.64% at the start of May and fell to 5.26% by the end of the same month. However, by mid-June, it shot up to over 6%.
“Despite the small gain in pending sales from the prior month, the housing market is clearly undergoing a transition,” stated Lawrence Yun, chief economist for the Realtors.
He added; “Contract signings are down sizably from a year ago because of much higher mortgage rates.”
According to Realtor.com, there’s a surge in new homes for sale by 21% from last year.
However, it’s half of the pre-Covid levels. The median listing price has been holding steady for three straight weeks and was up by about 17% year over a year.
The Northeast Recorded the Highest Sales
In the South, sales increased by 0.2% month to month after declining 13.8% year over a year. In the West, where homes are more expensive, the sales went down 5.0% for the month, adding to the 19.8% decline in a year.
The Northeast recorded the highest pending home sales with 15.4%, about a 4% increase from May 2021.
In the Midwest, it was the same case as in the West, with sales falling 1.7% for the month and dropping 8.8% in a year.
“While interest rates slid during the month, the costs of financing a home purchase remained elevated,” said George Ratiu, manager of economic research at Realtor.com
“At the midpoint of 2022, real estate markets are mirroring an economy reaching for its post-pandemic reality.”
The current average interest rate on the 30-year fixed mortgage home is about 6%, a minimal difference from its highest pick since the 2008 financial crisis.
Homes sales and mortgage applications have declined this year due to rising interest rates and recession fears.
Home builder confidence and prospective buyers’ traffic as key metrics of home sales have also fallen in recent months.
The Federal Reserve has in the past few months hiked interest rates higher to combat inflation, and home buying has become expensive, as experts predict a fall in demand in the housing market.
The housing market is highly unbalanced as demand outpaces supply.
“Trying to balance the housing market by choking off demand via higher mortgage rates is damaging to consumers and the economy,” said Yun.
Year-over-year declines in contract activity “further indicated the growing need to increase supply to tame home price growth and improve the chances of ownership for potential home buyers,” he added.
Should Investors Care?
Investors should be concerned since the sale of a property has a significant ripple effect, making it a leading indicator of the health of the economy.
For instance, the new owners carry out improvements, the lending institution sells mortgages, and brokers are compensated to complete the deal.
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