Summer and spring home sales are experiencing a sluggish phase, primarily influenced by a combination of high prices, elevated mortgage rates, and lower inventory. This has significantly impacted the strength of the spring selling season, resulting in a decline of 20% in the number of homes for sale compared to the previous year, with only 1 million homes available in May.
The current inventory has decreased by 6% from the previous month, leaving a mere 3-month supply of homes for potential buyers. In a robust market, a 6-month supply is considered ideal. Lawrence Yun, the chief economist for the National Association of Realtors (NAR), highlighted that the sales pace of newly constructed homes reflects pre-pandemic levels due to an abundance of inventory in that sector. However, the existing-home sales activity has suffered a substantial decline as the current supply is roughly half the level seen in 2019.
May sales are based on closings, indicating homes that likely went under contract in March and April. The period witnessed volatile mortgage rates, with the average contract interest rate on the popular 30-year fixed mortgage starting March above 7%. It then experienced a sharp drop, briefly reaching close to 6%, before gradually increasing again and maintaining an average of around 6.5% throughout April.
These fluctuations in mortgage rates have contributed to the uncertainty in the real estate market, impacting buyer affordability and confidence. Prospective homeowners may be hesitant to commit to purchasing a property when faced with higher borrowing costs.
In conclusion, the summer and spring home sales have been negatively affected by the combination of high prices, elevated mortgage rates, and lower inventory. The shortage of available homes, coupled with fluctuating mortgage rates, has resulted in a sluggish market. Prospective buyers and sellers should closely monitor market conditions to make informed decisions in this challenging real estate landscape.
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