Why Home Prices Soar to Record Highs Despite Falling Sales: Unpacking the Market Mystery

Home prices reached a record high in June, even as the housing market feels stagnant. The median price for existing homes soared to $435,300, surpassing last year’s record, according to the National Association of Realtors. However, actual sales dipped to a nine-month low, down 2.7% from May.

So, why are prices climbing while sales are declining? “Today’s market is really about haves and have-nots,” says Jessica Lautz, a deputy chief economist at the National Association of Realtors. Many buyers are left on the sidelines while some have ample cash to spend.

High-income earners are still active. Wages are increasing and the stock market is thriving, allowing homeowners to capitalize on their equity. “Those who have housing equity can trade up now,” Lautz explains, emphasizing that first-time buyers are generally shut out.

The luxury segment of the market shows the strongest performance. Homes priced over $1 million saw sales jump by 14% compared to last year. An analysis found that about 8.5% of U.S. homes currently exceed this price point. All-cash transactions made up nearly 29% of last month’s sales, shifting the landscape towards wealthier buyers.

In contrast, middle-income families are struggling to compete. Although price growth has slowed, the median home price is roughly 48% higher than five years ago. First-time buyers made up 30% of transactions last month, but many still can’t afford to jump in.

Adding to the dilemma, high mortgage rates, currently averaging around 6.74%, hamper access for new buyers. A small increase in interest rates can significantly affect monthly payments, making homes unaffordable for many. Lautz notes that existing mortgage holders are hesitant to sell because they would face higher rates if they bought again.

Interestingly, if mortgage rates were to drop, it could spark more buyer demand, driving prices up even further. Lautz adds that this scenario could further alienate first-time buyers from the market.

Regional disparities also exist. While some areas see price increases, others are facing declines. Redfin reported that prices dropped in 30 out of 50 major metros, with the steepest declines in Washington, D.C.; Austin, Texas; and San Diego. Job cuts and rising interest rates are causing buyers in these areas to reconsider affordability.

As for new homes, they have become more appealing. Despite a slight uptick in new-home sales over the last month, they remain down nearly 7% from last year. Interestingly, the median price of new single-family homes was $401,800—almost $40,000 less than existing homes. Builders are focusing on smaller homes to meet starter home demands and many are cutting prices to attract buyers.

However, high construction costs driven by the same mortgage rates mean that new home starts hit an 11-month low recently, and permits for new builds are at a two-year low. This reduced supply could complicate price stability in the future.

In summary, the housing market tells a tale of two realities: wealthier buyers are thriving, while first-time and middle-income buyers increasingly feel the strain of rising prices and interest rates.



Source link