Housing bubble problems: Sales of homes under $500,000 fall, total sales drop to lowest since shutdown, supply jumps

The magic of ridiculously inflated home prices that meet mortgage rates.

Written by Wolf Richter for WOLF STREET.

Sales of previously owned homes of all types — single-family homes, condos, co-ops and townhouses — fell 5.4% in June compared to May, the fifth consecutive month of monthly declines, based on a seasonally adjusted annual sales rate. Sales were down 14.2% from a year ago, the eleventh consecutive month of year-over-year declines.

The pace of the sales decline accelerated, even with all sorts of inventory suddenly out of the woodwork. The excuse for low sales that there was a shortage of homes on the market disappeared.

Sales of single-family homes are down 12.8% year over year, and sales of condos and co-ops are down 24.7%, according to the National Association of Realtors today (historical data via YCharts):

“Mortgage rates and home prices have risen very sharply in a short period of time,” NAR said in its report today.

Seasonally adjusted annual sales in June fell to 5.12 million homes, the lowest since the closing months in May, April and June 2020 (historical data via YCharts):

Holy mortgage rates in the driver’s seat.

I call them “holy mortgage rates” because that’s the sound potential homebuyers utter when they see the mortgage payments needed to finance the ridiculously inflated price of the home they want to buy.

The average mortgage rate rose to 5.5%, up from 2.9% a year ago, according to the latest reading by Freddie Mac. It broke through the 5% line in mid-April and has been in the 5.5% range since mid-June.

The 5.5% 30-year mortgage rate, when CPI inflation is over 9%, is still perplexingly low, speaking of years of interest rate suppression and quantitative easing by the Federal Reserve, which bought, among other things, 2.7 Trillion dollars of mortgage-backed securities, thus suppressing mortgage rates. But quantitative easing is over, QT rules, the Fed is starting to dump its mortgage-backed securities, mortgage rates have taken the first steps toward some sort of normal level, except for rates now that are very high due to years of mortgage-rate funnel, and it’s all out of control:

As always when the market turns, the show that no one thought existed starts to come out of the woodwork.

The number of homes for sale in June jumped by 110,000 from May to 1.26 million, the highest level since September, after jumping by 113,000 in May and by 100,000 in April.

Throughout the past year, the industry has lamented a “housing shortage” for price increases, when it really was a refusal for homeowners who bought another home to put their old and now vacant home on the market because they wanted to ride higher prices all the way to the top. This has now been achieved, and these vacant homes appear on the market

The supply of homes for sale jumped to 3 months, the highest level since August 2020, and by 20% from last year. Supply nearly doubled from January low (data via YCharts).

Sales by region.

Sales in all regions declined year on year. Note the 21.3% drop in the West: In California, closed-door sales of homes fell 21%, and sales of closed-off apartments fell 27%. To show where this is headed in July: California’s pending sales collapsed 40%.

  • Northeast: -11.8% YoY.
  • Midwest: -9.6% on an annual basis.
  • South: -14.1 years.
  • West: -21.3% YoY.

Average price shifted in the mix to higher quality sales.

The average price rose to $416,000, up 13.4 percent from a year ago, according to NAR. As we will see in a bit, the average price skews due to changes in the mix, and there was a significant shift in the mix to the higher end (data via YCharts):

I’ll just repeat my favorite explanation: In a market where 9 homes have been sold, the average price is the price in the middle (5th from the top). If only the first seven houses were sold, where the bottom fell, the middle is now the fourth house down, or the fourth house up. This change in the mix skews the average price scale, even though actual home prices remain unchanged:

In the US market, the bottom fell in sales of homes under $500,000, which made up 62% of total home sales in June.

But sales of homes over $500,000 increased year-over-year. Home sales in the $500,000 to $750,000 range made up 20% of total sales; Homes in the $750,000 range – $1 million representing 7%; Homes worth $1 million and above accounted for 8% of sales.

And this big change in the mix—with fewer homes sold in the bottom half and more homes sold in the top half—slid the average price upward. Sales by segment, according to NAR:

And don’t blame the West for this shift in the mix. In the high-priced West is where home sales have fallen the most (21.3% YoY). Decreasing sales faster in the higher priced west than in lower priced areas would usually cause the average price to skew lowest. So what we’re seeing is that the actual sales mix across the United States is changing, as premium buyers are less affected by the high affordability issues stemming from sacred mortgage rates.

And no, investors, second-home buyers, and cash-buyers aren’t all piling up: their share has remained flat.

Individual investors or second home buyers bought 16% of homes in June, as in May, down from 17% in April, 18% in March, 19% in February and 22% in January, according to NAR.

“All-cash” sales, which include many investors and second home buyers, remained at 25% in June, the same as in May, down from a share of 26% in April. Their share has been in the same range for the past 12 months.

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