US home prices stay near record high, even as sales drop in June

US home prices continued to fall in June compared to a year ago, but that may not be much comfort to home buyers. Even after falling, June’s median price hit the second-highest monthly median price on record going back to 1999, according to a National Association of Realtors report released Thursday.

The median existing home price was $410,200 last month, just 0.9% less than the all-time high from one year ago of $413,800. It marked the fifth month of year-over-year drops in median home sale prices.

Inventory of homes on the market remains historically low, as current homeowners are refusing to sell and hunkering down with their ultra-low mortgage rates that might be half or less of current rates.

“There are simply not enough homes for sale,” said Lawrence Yun, NAR chief economist. “The market can easily absorb a doubling of inventory.”

A house is for sale in Arlington, Virginia, July 13, 2023. (Photo by SAUL LOEB / AFP) (Photo by SAUL LOEB/AFP via Getty Images)

Just 1% of all US homes changed hands so far this year

Sales of existing homes — which include single-family homes, townhomes, condominiums and co-ops — dropped below expectations and were down 3.3% from May to June. Annually, sales were down 18.9% from a year ago, and the seasonally adjusted annualized sales pace dropped from 5.13 million units a year ago to 4.16 million in June.

“Relatively high mortgage rates near 7% and historically low inventory of existing homes on market is hindering sales activity,” said Yun.

June’s sales pace was the lowest since January and the lowest pace for the month of June (typically among the busiest months of the year) since 2009.

Mortgage rates remain volatile — so far this year, average rates have ranged from 6.09% to 6.96%. While rates were fairly steady in June, they were climbing in May when some of the home sales that closed in June would have gone under contract.

“The first half of the year was a downer for sure with sales lower by 23%,” said Yun. “Fewer Americans were on the move despite the usual life-changing circumstances. The pent-up demand will surely be realized soon, especially if mortgage rates and inventory move favorably.”

Home prices remain high

One of the reasons home prices remain high is because It’s summer.

Since home prices fluctuate seasonally and prices in the summer will trend higher than prices in the winter, economists typically look at year-over-year changes in prices — comparing January with the prior January, and June with the prior June.

On this monthly year-over-year basis, NAR’s median home prices have been falling since February, when prices fell lower than the year before for the first time in more than a decade. But June’s annual drop of 0.9% was much smaller than May’s annual drop of 3.1%, which was the largest year-over-year price reduction since December 2011.

And, although economists don’t rely on month-to-month comparisons because there is too much variability, buyers can see that the NAR’s median price has risen each of the past five months, even as they fell year-over-year.

Workers build homes in Lillington, North Carolina, US, on Thursday, June 15, 2023.

Construction of new homes fell 8% in the US last month

But, Yun, points out that always happens, month to month, as a function of seasonal changes in the market.

“Median home prices rise in the spring and summer because larger homes are sold during this time as families make moves,” said Yun.

The primary reason prices are staying elevated is the historically low inventory. And even though there are fewer buyers in the market, those who are compete for the same handful of homes coming to market.

As a result, 33% of homes sold in June went above list price, which is a proxy for a bidding war.

One small consolation is that the share of homes selling in a bidding war isn’t as high as last year, when 51% of properties went over the asking price.

“It’s not as intensely competitive now,” said Yun, “but by any historical standard, this is a tough market to be a buyer.”

Supply of homes stuck

A low supply of homes to buy, especially at affordable prices in popular places, is keeping sales low and prices high.

Total housing inventory at the end of June was 1.08 million units, which is identical to May but down 13.6% from one year ago, according to NAR. Prior to the pandemic, there were nearly twice as many homes on the market, Yun said.

Unsold inventory sits at a 3.1-month supply at the current sales pace, up from 3 months in May and 2.9 months in June 2022.

While the ratio of existing homes for sale to new homes for sale is typically 5 to 1, said Yun, with the inventory of new homes for sale robust at about 428,000 in May and existing homes just over 1 million the ratio is closer to 2 to 1.

Homes in Centreville, Maryland, US, on Tuesday, April 4, 2023. The Mortgage Bankers Association is scheduled to release mortgage applications figures on April 5.

Mortgage rates jump higher, closing in on 7%

Yun said that the biggest change in the market that would shake loose inventory would be for mortgage rates to drop. Some experts have said that it would take a 5.5% interest rate for homeowners to feel okay about giving up their lower rates.

“Homeowners are loving their 3% interest rate they bought or refinanced into,” said Yun. “Even if they are buying a same-priced home, their monthly payments would rise by about $1,000. If the pain of giving up that 3% is less severe, more people would be willing to sell.”

Building new homes and converting unused office space into housing are ongoing efforts to help supply, Yun said, but those take years to be useable. But, he said, there are some housing policy adjustments that could free up some housing inventory in the short term.

He said he would like to see a temporary capital gains tax relief program for investors who sell property to a certain category of buyer, like a first-time home buyer.

“There are about 20 million single-family rentals owned by mom and pop investors, maybe some of them would take the opportunity to sell, with a tax incentive,” he said.