Skyrocketing Home Prices Shatter the American Dream

Home prices have continued to climb to record highs across the country, but how is that reflected in home sales and mortgage rates?

Record High House Prices

Home prices in the US hit a record high last month, with existing homes selling for a median price of $419,300, according to the National Association of Realtors. 

Biggest Jump Since 2022

That number signals a 5.8% increase from the same time last year, which is the largest jump in prices seen since October 2022. It is now the highest-ever median house price on the NAR record.

Across the Country

Sales rates have also been inconsistent across regions, with some regions experiencing notably steeper drops than others. For example, southern states saw sales fall by 1.6% across the board, with the Midwest, West, and Northeast seeing the most notable changes.

How Are Buyers Responding?

Home prices may be racing ahead, with May being the eleventh consecutive month that prices have increased, but how are buyers responding? Are sales keeping up with the increase in price?

Falling for the Third Month

Sales have not kept up with price jumps, with nationwide home sales falling by 0.7% in May. While it may seem like a fractional change, it is the third month in a row where home sales have fallen based on NAR statistics.

Seasonally Adjusted Annual Rate

This brings the seasonally adjusted annual rate of home sales to 4.11 million. This is slightly up on polling done by Reuters, which saw economists predict a rate of 4.10 million units.

Resold Homes Fall Further

In particular, resales for pre-existing homes (which make up a significant portion of nationwide house sales) fell by 2.8%.

Edged Out of the Market?

Industry experts and analysts have pointed out that the two statistics correlate, as many home buyers – in particular, first-home buyers – are being edged out of the market by extraordinary prices.

“Creating a Wider Divide”

“Home prices reaching new highs are creating a wider divide between those owning properties and those who wish to be first-time buyers,” said Lawrence Yun, chief economist for the NAR.

Unlikely to End Soon

The property market had predicted an uptick in house sales in spring. Now, it seems increasingly unlikely that the downward trend, which began in 2022, will end this year.

“Sales Refuse to Recover”

“Home sales refuse to recover,” said Yun. “I thought we would see a recovery this spring. We are not seeing it.”

Mortgage Rates Soar

Mortgage rates have also jumped in the same period, according to the NAR, which has left even more potential homebuyers in the lurch. 

7% Through 2024

The average rate for a 30-year mortgage in the US has remained around 7% throughout the year.

Double in 5 Years

Data shows that mortgage payments are now almost double what they were in 2019 due to higher property prices and accelerated interest rates.

House Prices Also Doubled

This change in mortgage rates should be no surprise, as median home prices have also jumped by 50% in the same period.

Shift in Affordability

Due to rising prices and interest rates, the shift in housing affordability for average Americans during this period has been undeniable. 

Enormous Down Payments Needed

According to research from the real estate marketplace company Zillow, a median-income household now needs to save up a $127,000 down payment to afford the average monthly mortgage payment. The problem? This is approximately twice as much as the median US salary.

First-Home Buyers Still See the Value

Yun argues that even as home prices soar beyond what the average household can afford, first-home buyers will still sacrifice to attain the investment. “First-time buyers in the market understand the long-term benefits of owning,” he said.

Looking to the Fed

The property market and potential buyers and sellers are now looking to the Federal Reserve for an ounce of reprieve, as it is expected to continue cutting down interest rates, which previously hit a 23-year high.

Only One Cut This Year

While the Fed predicted three rate cuts for 2024, an announcement last week that inflation had continued to fall means the Fed is likely to reduce interest rates just once for the remainder of the year.

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The content of this article is for informational purposes only and does not constitute or replace professional financial advice.