June Home Sales Experience 14-Year Low Due to Short Supply Constraints
Sales of pre-owned homes declined by 3.3% in June compared to May, with a seasonally adjusted annualized rate of 4.16 million units, according to the National Association of Realtors.
Compared to June of the previous year, sales were lower by 18.9%, marking the slowest sales pace for the month since 2009.
The continuous weakness in the housing market is not due to a lack of demand but rather a critical shortage of supply. At the end of June, there were just 1.08 million homes available for sale, a decrease of 13.6% compared to June 2022. With the current sales pace, this represents a 3.1-month supply. Generally, a balanced market is characterized by a six-month supply that meets both buyer and seller needs.
“There is a clear shortage of homes available for sale,” explained Lawrence Yun, the chief economist for the Realtors. “The market could easily accommodate a doubling of inventory.”
This trend continues to put pressure on home prices, with the median price of an existing home sold in June reaching $410,200, the second-highest price ever recorded by the Realtors. Last June’s price was marginally higher, but only by approximately 1%. It is worth noting that this median measure reflects the types of homes being sold, and currently, the market is more active at the lower end due to higher mortgage rates compared to last year.
“While home sales have decreased, home prices have remained steady in most parts of the country,” Yun stated. “Limited supply continues to result in multiple-offer situations, with approximately one-third of homes selling above the list price in the latest month.”
Given the impact of mortgage rates on affordability, it is unlikely that sales will recover anytime soon. The Realtors measure June sales based on closings, which means that contracts were likely signed in April and May. Mortgage rates remained around the mid 6% range during that period and abruptly rose to over 7% towards the end of May. Throughout June, rates stayed in the 7% range as home prices continued to climb.
First-time buyers are facing the most challenges, with their share of June sales dropping to 26%, a decline from 30% in June 2022. This is the lowest share recorded since the Realtors started tracking this metric.
On the other hand, the higher end of the market seems to be recovering. Although sales were lower across all price points, the high-end segment experienced the least decline. This differs from last year when sales of higher-priced homes dramatically decreased.
As competition intensifies, buyers are increasingly relying on cash offers to entice sellers. All-cash transactions accounted for 26% of June sales, slightly higher than both May and June of the previous year.
The current state of the existing home market suggests a slow rebound in sales, contrasting with the positive outcomes observed in the sales of newly built homes. DR Horton, the nation’s largest homebuilder, has recently disclosed an impressive surge in new orders during its latest earnings release on Thursday.
Donald Horton, the chairman of the board, stated, “Despite encountering persistent challenges, such as higher mortgage rates and inflationary pressures, our net sales orders experienced a remarkable 37% increase compared to the same quarter of the previous year. This surge can be attributed to the limited supply of both new and existing homes at affordable price points, combined with favorable demographic factors that continue to drive housing demand.”