In a surprising trend, home prices in the United States have climbed to a record high despite declining demand and sales activity. As reported by The Wall Street Journal, the national median home price in May hit $419,300, up 5.8% from the previous year.
This rise in prices comes at a time when many homeowners are hesitant to sell due to high mortgage rates. Although housing demand has decreased because of affordability issues, with a 0.7% drop in sales of previously owned homes in May, the reduction in demand has not been enough to offset the limited supply of homes, driving prices higher.
Lawrence Yun, the chief economist at the National Association of Realtors (NAR), noted the unusual market conditions, saying, “We have low home-sales activity yet prices are hitting record highs.” The combination of rising home prices and higher mortgage rates has made it more difficult for working-class Americans to purchase homes.
Back in February 2020, before the COVID-19 pandemic, the median home price was $270,400, and the average 30-year fixed-rate mortgage was 3.89%. Now, the median price has soared to $419,300, an increase of 1.55 times, and the average 30-year fixed-rate mortgage has jumped to 6.87%, over 1.75 times higher than the pre-pandemic rate, according to NAR data.
However, the rapid price increases may slow in the near future. Consumer confidence has dropped significantly, with only 14% of people surveyed by Fannie Mae believing it is a good time to buy a home, matching the low levels seen after the 2008 financial crisis. As a result, homes are staying on the market longer as buyers wait for better conditions, which is slowly increasing the housing inventory.
Since President Joe Biden took office in January 2021, inflation has risen by 20.1%, with annual inflation rates reaching as high as 9% in June 2022. To address this inflation, the Federal Reserve has raised the federal funds rate from 0%-0.25% to 5.25%-5.5%, which has significantly increased mortgage rates and borrowing costs for Americans.
The current state of the housing market, with record-high prices and high mortgage rates, poses a significant challenge for potential homebuyers. As inventories rise, there may be some easing in prices, but affordability remains a critical issue for many looking to buy a home.
