Wrapup 1: U.S. home sales slump further; median house price hits record high

Applied Energetics

21/06/2022 17:09

* Existing home sales fall 3.4% in May
    * Median house price surges 14.8% to $407,600 from year ago
    * Housing inventory falls 4.1% from year ago
    * Chicago Fed National Activity Index falls to 0.01 in May

    By Lucia Mutikani
    WASHINGTON, June 21 (Reuters) - U.S. existing home sales
tumbled to a two-year low in May as prices jumped to a record
high - topping the $400,000 mark for the first time - and as
mortgage rates increased further, sidelining first-time buyers
from the market.
    Despite the fourth straight monthly drop in sales and
declining affordability, reported by the National Association of
Realtors (NAR) on Tuesday, the housing market remains fairly
hot, with properties typically staying on the market for a
record 16 days last month. 
    "The market is far from weak," said Conrad DeQuadros, senior
economic advisor at Brean Capital in New York. "It will likely
take some time for the full impact of monetary adjustment to
feed through."
    Existing home sales fell 3.4% to a seasonally adjusted
annual rate of 5.41 million units last month, the lowest level
since June 2020 when sales were rebounding from the COVID-19
lockdown slump. Sales rose in the Northeast, but declined in the
Midwest, the West and densely populated South.
    Economists polled by Reuters had forecast sales would
decrease to a rate of 5.40 million units. Home resales, which
account for the bulk of U.S. home sales, tumbled 8.6% on a
year-on-year basis. May's sales were mostly closings on
contracts signed one to two months ago, before mortgage rates
started accelerating amid a surge in inflation expectations and
the Federal Reserve's aggressive interest rate hikes.
    The 30-year fixed-rate mortgage jumped 55 basis points last
week to a 13-1/2-year high average of 5.78%, according to data
from mortgage finance agency Freddie Mac. That was the largest
one-week increase since 1987. The rate has surged more than 250
basis points since January.
    The report joined housing starts, building permits and
homebuilder sentiment in suggesting that the housing market was
losing speed under the weight of higher borrowing costs. It was
also the latest indication that the U.S. central bank's rapid
monetary policy tightening was slowing the overall economy.
    That was underscored by a separate report from the Chicago
Fed on Tuesday showing its National Activity Index fell to a
reading of 0.01 in May from 0.40 in April, which it said 
"suggests economic growth declined in May." 
    A zero value for the monthly index has been associated with
the national economy expanding at its historical trend rate of
growth. Fears of a recession have been mounting in the wake of
the Fed's decision last week to raise its policy rate by
three-quarters of a percentage point, its biggest hike since
1994.
    The Fed has increased its benchmark overnight interest rate
by 150 basis points since March. 
    U.S. stocks on Wall Street were trading higher after a
recent sharp sell-off. The dollar  .DXY  fell against a basket
of currencies. U.S. Treasury yields rose.
    
    SUPPLY STILL TIGHT
    The housing market is the sector most sensitive to interest
rates. Its slowdown could help to bring housing supply and
demand back into alignment and lower prices.
    The median existing house price raced 14.8% from a year
earlier to an all-time high of $407,600 in May. It was the first
time that it has risen above the $400,000 level.
    Sales remained concentrated in the middle- and upper-price
parts of the market. The $250,000-$500,000 price bracket
accounted for 42.0% of the houses sold last month, with the
$500,000-$750,000 segment making up 19.3%. Only 19.5% of the
homes sold were in the sought-after $100,000-$250,000 price
range. Big price gains were reported in Miami, Nashville and
Orlando. 
    There were 1.16 million previously owned homes on the
market, following a seasonal monthly bump of 12.6%. Still,
supply remained 4.1% down from a year ago.
    With demand cooling, monthly supply is likely to continue
steadily improving. The government reported last week that
housing completions in May increased to the highest level since
2007, while the backlog of homes yet to be built hovered near
record highs.  urn:newsml:reuters.com:*:nL1N2Y312Q
    At May's sales pace, it would take 2.6 months to exhaust the
current inventory of existing homes, up from 2.5 months a year
ago. A six-to-seven-month supply is viewed as a healthy balance
between supply and demand. Eighty-eight percent of homes sold in
May were on the market for less than a month.
    First-time buyers accounted for 27% of sales, down from 31%
a year ago. All-cash sales made up 25% of transactions, up from
23% a year earlier. 
    With homeownership out of the reach of many people, there is
an increase in renting. The NAR said this trend was drawing more
Wall Street investors to the market, pushing first-time buyers
further out.
    The NAR urged policymakers to consider temporarily lowering
capital gains taxes for mom-and-pop investors to sell to
first-time buyers.

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 (Reporting by Lucia Mutikani;
Editing by Dan Burns and Paul Simao)
 ((Lucia.Mutikani@thomsonreuters.com))