A low supply of homes around the country has pushed home prices to a new record high.
As shown in the chart below, the national median existing home price reached $419,300 in May. This nominal price is up 5.8% year-over-year. High prices, mortgage rates, and home insurance rates are working together to lower home sales this Spring – which is typically the season in which demand for homes is at its height. Existing home sales have fallen 2.8% on an annual basis to hit a 30-year low.
Mortgage rates are high because Treasury rates have increased, as has the spread between mortgage rates and the 10-year Treasury yield. Since February 2022, mortgage rates have nearly doubled, increasing from about 3.89% to just under 7%. Accordingly, mortgage payments have increased significantly, eating away at consumer budgets.
Consumer faith in the housing market is low: more than 80% of consumers presently possess a negative outlook on homebuying. Thus, looking ahead, as buyers continue to give up the search for an affordable home, the decrease in demand will likely push home prices down. As buyers exit the market, housing inventory will increase, compounding the downward pressure on prices.
Source: Nicole Friedman, WSJ
Victoria Freeman is a Collegiate Associate at the Manhattan Institute
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