Home Sales Suffer Third Worst Month In The Last 10 Years

May marked one of the worst months for home sales in the past decade, with sales plummeting to their third-lowest level.

Continuing a trend seen over the last eight months, the drop in home sales comes as the market deals with high home prices, elevated mortgage rates, and a persistent housing shortage that has deterred prospective buyers. Despite a record high in the median U.S. home sale price during May, the market saw a 1.7% month-over-month decrease and a 2.9% decline from the previous year, according to a report issued by Redfin on Friday, as conditions continue to challenge buyers and sellers across the country.

Despite broad market challenges, some regions are seeing fluctuations that suggest a more nuanced recovery pattern across different metro areas. While the overall national trend points to a decline, individual markets show varied responses to the current economic pressures.

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"Buyers today are facing many of the realities of a hot market even though few homes are changing hands," said Redfin Senior Economist Elijah de la Campa in the report. Sales are sluggish because high homebuying costs are making both house hunters and prospective sellers skittish. With so few homes for sale, buyers in some markets are getting into bidding wars, which is helping push home prices to record highs."

These markets include hot spots in California and Minnesota.

San Jose, for instance, saw a 16.6% rise in closed home sales, leading the pack among U.S. metro areas that Redfin tracked. The increase was closely followed by Minneapolis, which saw an 11.7% rise, and San Francisco, where home sales increased by 10.5%.

However, the increases contrast with cities like Stockton, California, and Buffalo, New York, where sales plummeted by over 15%.

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To that end, some sellers are reducing prices to offload properties in cooler markets. Particularly in markets inundated with new construction, like Tampa and Denver, a large percentage of listings saw price reductions. In Indianapolis, almost half the listed homes had price cuts, reflecting an aggressive response to cooling demand.

Conversely, markets with tight supply still see homes sell above the list price. In Rochester, New York, 77.1% of homes sold above their final list price, indicating strong buyer competition driven by a scarcity of available properties.

Experts say the fix to this issue is increasing supply, which is improving slowly but is still far from meeting the demand in many areas. New listings, up 8.8% from the previous year, remain about 20% below pre-pandemic levels.

Active listings have seen a modest increase, which could relieve some pressure, but the market is still fundamentally constrained.

The Redfin senior economist suggested that the market might see an uptick in activity later in the year if mortgage rates decline. However, that prediction is cautious and hinges on moves that the Federal Reserve might make, including a reduction in the Fed Funds rate, which directly impacts buyer affordability.

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