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Last week’s news offer more evidence that Year 2022 will continue to be bumpy for the economy and the housing market as inflation remains unsettled. Consumer sentiment hit another record low as many remained concerned about their personal finance being eroded by high inflation that does not seem to retreat any time soon. Shelter costs, for example, stayed elevated as rental rates continued to rise primarily due to supply shortage. The market began to see some signs of relief in housing supply, however, as inventory - both existing and new - continued to rise as sales began to adjust to higher interest rates. New home sales showed a brief sign of resurgent in recent weeks, as buyers took advantage of a slight pullback in rates and rushed to lock in rates before they move even higher. The trend, however, will not be long lasting as rates are expected to climb further in the months ahead.
Existing home sales decline in May, as the market adjusts to higher mortgage rates: Sales of existing homes in the U.S. fell 3.4% in May to an annualized pace of 5.41 million units. Higher prices and rising interest rates have reduced affordability and negatively impacted buyer demand, resulting in sales dropping to their pre-pandemic levels. The national median price of existing homes rose 14.8% over the past year to $407,600 and surpassed the $400,000 benchmark for the very first time. The number of home available for sale also started rising as housing demand slowed, which is good news for homebuyers. Meanwhile, more homes being discounted from their list prices in May suggests that further price softening in the months ahead should be anticipated.
New home sales increase while inventory rises: Against expectations, sales of new homes in May surged 10.7% to an annualized pace of 696,000 units. The surge in sales - due partly to buyers rushing to the market to lock in rates before they rose higher - appears to have pulled sales forward. With rates rising in most recent weeks, home builders have also reported slowing sales trend that may not be reflected until next month when June sales numbers are released. Inventory of new homes also rose but the bulk of it was still under construction as home builders continued to struggle with supply chain issues.
Mortgage applications increase from previous week despite rising rates: An increase in home purchase activity drove mortgage applications higher last week. According to the Mortgage Bankers Association’s (MBA) weekly Market Composite Index, mortgage loan application volume rose 4.2% on a seasonally adjusted basis from the previous week. Purchase applications alone rose 8% from one week earlier, likely bolstered by an increase in the share of Adjustable-rate mortgage (ARM) applications. With rates surging to their highest level since November 2008, the share of ARM applications jumped back to over 10% as consumers looked for other financing alternatives to keep their cost of borrowing down.
Rental prices hit another record high, but growth appears to be tapering off: According to Realtor.com, rents climbed 15.5% annually in May and hit a median of $1,849 in the nation’s largest metropolitan areas. While it was the 15th consecutive month of growth, May had the slowest annual growth pace for rents since September 2021. The annual growth rate has been steadily slowing throughout the year since after peaking at 17.3% in January. Rents have been surging as a direct result of housing supply shortage. There are simply more people looking for places to live than there are properties for them.
Consumer sentiment fell to a record low: Despite inflation expectations coming in at 5.3% and slightly lower than the initial readings suggested earlier this month at 5.4%, consumer sentiment across income, age, education, geographic region, political affiliation, stockholding, and homeownership status all posted large declines. The University of Michigan’s sentiment index dropped 14.4% from May’s reading of 58.4% a year ago to 41.4%. Survey results also suggest that nearly 4/5 consumers expect bad times in the year ahead for business conditions, the highest level since 2009.
If you're ready to discuss today's market and whether now is a good time for you to buy or sell, give me a call at (562) 900-9430.
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