Housing Bubble Woes: Supply Jumps, Sales Drop, Median Price Skewed Higher by Shift in Mix as Bottom Falls Out below $ 500k, amid Holy-Moly Mortgage Rates

California special: Pending sales collapse by 30%, prices begin to “moderate,” San Francisco condo prices decline year-over-year.

By Wolf Richter for WOLF STREET.

Sales that closed in May of previously-owned single-family houses, condos, co-ops, and townhouses fell by 3.4% from April, based on the seasonally adjusted annual rate of sales, and by 8.6% from a year ago, the National Association of Realtors reported today.

Sales of single-family houses alone dropped by 7.7% year-over-year. Sales of condos and co-ops dropped by 15.3% year-over-year.

May was the tenth consecutive month of year-over-year declines. The old saw that there’s no inventory for sale is no longer an excuse because supply jumped 12.6% in May – so sharply falling sales on sharply rising supply (data via YCharts):

“Further sales declines should be expected in the upcoming months given housing affordability challenges from the sharp rise in mortgage rates this year,” the NAR report said.

The seasonally adjusted annual rate of sales in May fell to 5.41 million homes, the lowest since the lockdown sales rates (data via YCharts):

Inventory for sale and supply jump.

The number of homes listed for sale in May jumped by 12.6% from April, or by 113,000 homes, after having jumped by 100,000 homes in April, to 1.16 million, the highest since November.

Supply of homes listed for sale jumped to 2.6 months, from 2.2 months in April, and from 2.5 months in May last year, the first year-over-year increase since the lockdown. This is quite a change from the low in January of 1.6 months (data via YCharts).

Sales by Region.

Percent change of the seasonally adjusted annual rate of total home sales in May from April, and year-over-year (yoy):

  • Northeast: + 1.5% from April, -9.3% yoy.
  • Midwest: -5.3% from April, -7.5% yoy.
  • South: -2.8% from April, -8.4% yoy.
  • West: -5.3% from April, -10.0% yoy.

In California, closed sales plunged, pending sales collapsed.

According to the California Association of Realtors (CAR), sales that closed in May of houses plunged 15.2% in May year-over-year; and sales of condos plunged 12.3%. These are closed sales.

Pending sales – a predictor of closed sales the following month – collapsed by 30.6% in May, “likely due to eroding affordability, rising mortgage rates and home prices, and the increased risk of a recession,” the CAR report noted.

Holy-Moly Mortgage rates.

The average 30-year fixed mortgage rate spiked to over 6% last week for the first time since 2008, according to the daily measure by Mortgage News Daily. According to the most recent reading by Freddie Mac last week, the average mortgage rate spiked to 5.78%.

These mortgage rates are so named because “holy moly” is what people say when they look at the mortgage payment for the ridiculously inflated price of the home they want to buy.

But sales that closed in May are based on mortgage rates of the prior month or two, when they were much lower. Until mid-April mortgage rates were in the 4% to 5% range. In May, mortgage rates were just a little above Five%.

It’s in June, when the spike took off with renewed vigor, and we haven’t seen much housing data on June yet, except that luxury sales in Manhattan plunged by 70% year-over-year in the week through June 19, but that was mostly due to the sell-off in the stock market.

The green box shows the closed sales in May are based on deals that were largely negotiated in April, with mortgage rates from April and before, when these buyers applied for mortgages and obtained mortgage rate locks that are good for a set period of time. mortgage rates that roughly applied to home purchases that closed in May, around 4% to 5%.

Median Price pushed up by shift in mix to higher-end sales.

In California: The median price rose to $ 899,000, up by 9.9% year-over-year, according to the California Association of Realtors. But the median price is sensitive to changes in the mix, and according to the CAR, this price increase in the state “ can largely be attributed to the mix of sales, with the high-end market continuing to outperform the more affordable market segments. ”

The change in mix show up in the share of million-dollar homes, which jumped to a record share of 35.3%, while the share of homes priced below $ 500,000 hit an all-time low.

“Home prices could be leveling off though, as the monthly gain in price appears to be moderating,” the CAR said. And this is already happening in San Francisco.

In San FranciscoThe median price of single-family houses in San Francisco rose 6.1%, the second lowest gain of the big counties in California, behind Contra Costa county (East Bay), the median price of condos fell 0.3% year-over-year. where the median house price rose only 1.0% year-over-year.

In the US of A: the median price rose to $ 407,600, up by 14.8% from a year ago, according to the NAR. And here too, as we’ll see in a moment, there was a huge shift to the higher end (data via YCharts):

The median price is skewed by changes in the mix.

My favorite illustration: To get the median price in a market where 9 homes sold, you list them by price from the highest to the lowest, and the price of the fifth house from the top or the fifth from the bottom (same house) is the price in the middle = median price.

But if the two cheapest houses don’t sell, and if the remaining seven homes sell, the middle is now the fourth house down, or the fourth house up. This change in mix skews the metric of the median price, though the actual prices of the homes haven’t changed:

This change in mix is ​​what happened in the US too..

Sales of homes priced below $ 500,000 have plunged, while sales above $ 500,000 have surged year-over-year, and these dramatic changes the mix have skewed the median price upward, according to data from the NAR:

Investor share of sales and all-cash sales dipped, but stayed in the same range.

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

“All-cash” sales, which include many investors and second home buyers, declined to a share of 25% in May, from a share of 26% in April, but were up from 23% a year ago.

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