Record High Prices, Rising Mortgage Rates Depress US Home Sales

• U.S. existing home sales fell for a third straight month in May as record-high prices and a resurgence in mortgage rates sidelined potential buyers from the market. There was, however, encouraging news on the housing market with the National Association of Realtors reporting on Friday that housing inventory jumped last month to a two-year-high. Rising supply, if sustained, could curb further price gains and improve affordability.
• Nonetheless, weak home sales added to a sharp drop in housing starts and building permits last month suggesting that a re-acceleration in mortgage rates from April through May had sapped momentum from the housing market recovery.
• "Poor affordability and still-low, though rising listings in the resale market are keeping buyers at bay, with little change expected until the Federal Reserve reduces policy rates," said Sal Guatieri, a senior economist at BMO Capital Markets.
• Home sales dropped 0.7% last month to a seasonally adjusted annual rate of 4.11Mn units. Economists polled by Reuters had forecast home resales sliding to a rate of 4.10Mn units. Home resales, which account for a large portion of U.S. housing sales, decreased 2.8% year-on-year in May.
• The average rate on the popular 30-year fixed mortgage raced to a six-month high of 7.22% in early May before retreating to just below 7.0% by the end of the month, data from mortgage finance agency Freddie Mac showed.
• Sales dropped 1.6% in the densely populated South. They were unchanged in the Midwest, which is considered the most affordable region, as well as in the Northeast and West.
• Housing inventory increased 6.7% to 1.28Mn units last month, the highest since August 2022. Supply jumped 18.5% from one year ago. NAR chief economist Lawrence Yun noted that inventory vaulted 40-60% in Texas and Florida, which he partially attributed to soaring costs like property insurance.

(Source: Reuters)