Over the longer term, the US real estate market is feeling its way through a dark tunnel of high prices and counterproductive interest rates. First-time buyers now make up just 30% of transactions, according to recent reports. This drop speaks to the incredible hurdles so many Americans face in attempting to enter the market. On a year over year basis, May’s existing home sales were down 23.8% from May of 2022. This increase is a sign of hopeful optimism on the part of buyers and sellers alike.
Even with this increase in sales, would-be homebuyers still face persistent affordability challenges. The monthly payment on the median borrower’s loan is now $2,211, up $670 per month. This total further calls attention to the economic hardships so many Americans have been dealing with. With the average 30-year mortgage rate holding steady at 6.81%, these two trends together are creating huge headwinds for those looking to become homeowners.
Market Conditions and Trends
As US real estate is now in a state of turmoil, a clear and present dark irony poses a tremendous opportunity and dilemma. High property values and persistently high interest rates make it difficult for many prospective buyers to enter the market. The median price of resales—the bulk of transactions—priced homes that are at least a few decades old—shot up to $422,800 in May, up 1.3% year-over-year. The increase in prices has severely impacted first-time buyers. With ongoing high interest rates, purchasing a home often seems like an impossible dream for them.
The inventory of unsold new homes has ballooned to 507,000 units. That would be enough supply to cover 9.8 months of sales. This set of circumstances represents a whopping 15% jump in unsold homes since May of 2024, adding more headwinds to an already bizarre real estate calculus. As one region makes progress, with increases in those areas’ sales tax revenue, another is seeing drops, indicating losses in sales. In fact, Tampa and Dallas have seen existing home sales decrease year-on-year by 2.2% and 0.2% respectively.
“If interest rates fall in the second half of the year, we can expect a rebound in sales.” – Lawrence Yun, chief economist at the NAR
Yun’s statement extends a ray of hope for the future market. On the new buyer front, he recommends that lowering interest rates might be a way to stir some buyer activity.
Regional Variations in Sales
Sales trends we’ve dissected get very hard to track nationally across the United States. If applied accurately, while some regions face the negative impacts of falling sales, stagnation at best, many more are growing. Even cities throughout the Rust Belt, such as New York, Chicago and Detroit are at the forefront of increasing home sales. They’ve accommodated year-on-year increases of 7.9%, 6.0%, and 5.5%. These cities have proven their resilience despite broader market trends.
The divergent performances across regions help show the complex, multifaceted nature of today’s real estate market. Now, contrary to conventional wisdom, larger metropolitan areas are enjoying a comeback. At the same time, smaller regional markets such as Tampa and Dallas are grappling with headwinds that may dampen their advances.
Outside of this regional imbalance, the National Association of Realtors’ forward-looking indicator of pending home sales made a surprising turnaround, increasing a nationwide 1.8% in May. This uptick might be an early sign of a turning point in buyer sentiment and a jumpstart of future sales activity.
The Path Forward
Ambivalence permeates the US real estate market as it gingerly treads a deeply troubled recovery. Buyers and sellers are feeling their way around in the dark with sky-high home prices and interest rates. These financial realities are increasingly shutting prospective buyers out of the market. As a result, countless would-be purchasers sit on the sidelines, waiting for better times before entering the largest financial obligations of their lifetimes.
Affecting the market’s future most profoundly will be the affordability and accessibility problems that continue to plague the industry. Industry experts expect sales would see a significant bounce back when interest rates eventually start to drop, which they are forecasted to do later this year.