U.S. home sales declined in May—typically a frenzied time for the market—as the disconnect grows between the price of homes on the market and buyers’ budgets, the National Association of Realtors said this week.
Existing home sales slowed for the second consecutive month in May, down 3% from a year ago, as the prices hit an all-time high, according to the association’s monthly index. The subdued market has left the industry perplexed, given the strength of the U.S. economy and the fact that unemployment hit its lowest level in 18 years in May.
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Lawrence Yun, NAR’s chief economist, attributed the slowdown to a dearth of affordably priced housing. Rising mortgage rates have exacerbated the shortage by squeezing buyers’ budgets as they factor in the higher borrowing costs.
“There’s no question the combination of higher prices and mortgage rates are pinching the budgets of prospective buyers, and ultimately keeping some from reaching the market,” Mr. Yun said in a statement.
Median closing prices hit an all-time high in May of $264,800, a rise of nearly 5% from May last year. The report did not break out data on the luxury market.
The trade group has lowered its expectations for 2018, and now predicts 5.43 million homes will sell by the end of the year, down 0.4% from their estimate from a month ago.
Problems in the market are self-reinforcing as buyer competition for a limited number of homes pushes prices up and further out of reach.
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New listings during the spring buying season were “not even close to being enough to satisfy demand,” Mr. Yun said. “That is why home prices keep outpacing incomes and listings are going under contract in less than a month—and much faster—in many parts of the country.”
The shortage and slowdown are fairly widespread, with every major region of the country recording a year-over-year decline in sales.