U.S. home prices in May experienced their biggest annual increase in more than two decades, as a shortage of properties and low borrowing rates fueled demand.
The median existing-home sales price in May topped $350,000 for the first time, the National Association of Realtors said Tuesday. The figure was nearly 24% higher than a year ago, the biggest year-over-year price increase NAR has recorded in data going back to 1999.
Sales prices have been climbing sharply since last summer, when lockdowns related to the Covid-19 pandemic eased across the country and many people rushed to find more space and bigger homes. Others working remotely seized on the chance to move to a less expensive city.
The price increase is contributing to a slowdown in the pace of home sales. Existing-home sales fell 0.9% in May from April, marking the fourth straight month of declining sales, NAR said.
Sales are also slipping because there aren’t enough homes on the market to meet demand, say economists and real-estate agents. Homes that are for sale are moving quickly. The typical home that sold in May spent 17 days on the market, matching the record low reached in April, NAR said.
Buyers with limited cash for down payments are struggling the most to compete. Just over half of existing-home buyers in May who used mortgages put at least 20% down, according to a NAR survey.
“Affordability appears to be now squeezing away some buyers,” said Lawrence Yun, NAR’s chief economist. “There are so many people who have been outbid, frustrated they are unable to buy.”
Jake and Belén Markham, who live in Gilbert, Ariz., are among those who have opted out of the current market. The couple put in two unsuccessful offers on houses this spring before deciding to find a rental apartment instead.
“We started realizing that…we couldn’t get what we wanted, pretty much, with the prices how they were,” Mr. Markham said. “Our best bet is to keep saving up money, so that we can be a little bit more of a player in this market.”
Mortgage applications for home purchases have slowed this spring, another sign that a number of buyers are holding off. Applications fell 17% from a year earlier in the week ended June 11, according to the Mortgage Bankers Association.
Some 35% of consumers surveyed by Fannie Mae in May said it was a good time to buy a home, a record low in data going back to mid-2010. “From our perspective, it’s almost all driven by the attitudes about price,” said Doug Duncan, chief economist for Fannie Mae.
Yet even with some buyers in retreat, the housing market remains hot by most other measures. Homes are getting multiple offers, and low mortgage rates keep fueling demand. More than half of homes sold above their list price in May, according to real-estate brokerage Redfin Corp.
Jennifer Rubin and Matthew Snyder lost out on 11 offers before having one accepted for a four-bedroom house in Shoreline, Wash. The couple was living in a one-bedroom apartment with their 3-year-old daughter and in a rush to buy a house, because their second child is due in August.
“We were competing with people that were willing to put $250,000 on top of the asking price,” Ms. Rubin said. “It was really stressful and emotionally draining to constantly be rejected from offer after offer.”
The family moved into their new home last month. “I feel really fortunate to be able to afford to buy a home. I honestly didn’t think that it was in our future,” Ms. Rubin said. “We did save as much as we could when we could, but still it never felt like enough.”
Wall Street and big investment firms have been looking for more exposure to the U.S. housing market by buying up homes and renting them out. In the most recent move, Blackstone Group Inc. said Tuesday it agreed to pay $6 billion for Home Partners of America Inc., which owns more than 17,000 houses throughout the U.S.
Home builders are trying to crank out more supply to meet the booming demand. Housing starts, a measure of U.S. home-building, rose 3.6% in May from April, the Commerce Department said last week.
Builders are limited, however, by land supply, construction and material costs, and the supply imbalance shows no near-term sign of meaningfully easing. Residential permits, which can be a bellwether for home construction, fell 3% last month from the previous month.
The hot market is especially tough on first-time and lower-income buyers, but home sales have been strong at the top end. The number of homes selling that were priced over $1 million more than doubled in May compared with a year earlier, according to NAR.
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