Home prices hit a new high in May as inventory remained woefully low
A recent study discovered that home prices in the United States reached an all-time high in May. This significant increase can mainly be attributed to the severe shortage of available housing.
On a countrywide level, the cost of homes rose by 0.7% from April to an estimated yearly rate of 8.9%, according to Black Knight, a company that specializes in mortgage technology and data. The prices of houses have been consistently on the rise since the beginning of this year and saw a slight increase of 0.1% in May when compared to the same period last year.
The significant increase in prices occurred because there was not enough inventory available. Based on the examination conducted, the number of actively listed properties has drastically decreased in 95% of the main markets this year. Additionally, it is worth noting that these numbers were more than 50% lower compared to levels before the pandemic.
The findings emphasize the challenges faced by potential homebuyers due to increasing mortgage rates and limited availability of homes, resulting in higher prices.
Without a doubt, it can be said that the real estate market has experienced a resurgence in terms of property prices," stated Andy Walden, vice president of enterprise research at Black Knight. "The steady increase in prices has completely offset the decline we observed during the second half of 2022 and propelled the seasonally adjusted Black Knight Home Price Index to reach a new all-time high in May."
At an event organized by Prudential Realtor Tracy Do, a constant flow of potential buyers, real estate agents, and brokers can be seen visiting and exploring this 1920s California Bungalow located in Highland Park. (Image credit: Allen J. Schaben/Los Angeles Times via Getty Images)
Big Markets Take A Blow
The limited supply of homes available for resale contributed to an increase in housing prices during the month of May.
According to the most recent Mortgage Monitor report from Black Knight, around 27 out of the 50 biggest markets in the United States, mainly located in the Midwest and Northeast, experienced either a return to the highest home prices seen in 2022 or even exceeded those previous peaks in May. Only eight among the top 50 markets had home prices that were more than 5% lower than their 2022 highs.
According to Walden, the warming-up is happening on a large scale. Prices, although they are still considerably lower than their highest levels in the Western region and various cities that experienced a booming economy during the pandemic, have started to stabilize in the past few months, leading to a narrowing of those disparities.
As an example, according to a study conducted by Black Knight, the city of San Jose witnessed the most significant increase in prices compared to other markets. Prices in San Jose grew by 1.4% in just one month. This growth was closely followed by San Diego with a 1.1% increase, Los Angeles with a 1.0% increase, San Francisco with a 0.9% increase, Seattle with a 0.9% increase, and Sacramento, California, with a 0.8% increase.
Increase or decrease? A fresh cost indication in Palo Alto, California. (Source: Paul Sakuma, AP Photo)
Austin, Texas stood out as the anomaly, experiencing a significant decline in home prices, reaching 13.8% below its previous peak. Surpassing all other markets, Austin had the biggest margin of decrease. Moreover, the inventory levels in Austin were higher than they were before the pandemic struck.
According to Walden, in many parts of the country, the available inventory for sale is moving in the opposite direction compared to Austin.
Freshly built infrastructure, on the other hand, provided purchasers with a ray of optimism.
Black Knight observed that 40% of all ongoing construction projects consisted of individual homes, despite being 30% lower than the highest point reached in 2005. Economists suggest that the increase in newly constructed houses could attract a larger number of potential buyers to enter the market.
"...May saw robust figures in the initiation and finalization of newly built structures, which brings glad tidings," Walden expressed. "Nevertheless, the majority of ongoing ventures during that month were centered around the construction of apartment buildings with five or more units, rather than single-family homes."
No Boost From Mortgage Rates
The spring season witnessed a significant drop in affordability, almost reaching its lowest level since the time of Reagan. This was due to the immobile mortgage rates which remained firm around 6%. Consequently, existing homeowners were discouraged from putting their properties on the market.
While the amount of inventory available for sale slightly increased, it remained at a 51% reduction compared to pre-pandemic levels.
According to the report, a large number of individuals who currently have a mortgage or are considering selling their property have an interest rate on their mortgage that is less than 4%. As a result, many of them are not motivated to put their property on the market due to the prevailing conditions of expensive prices, limited availability, and high interest rates.
Based on the information provided by Black Knight, the average amount needed from the median household income to cover the principal and interest payment for a home this spring is 35.7%. This ratio is the highest it has been since around October 1985, when it was 36.01%. Walden from Black Knight had previously mentioned this to Yahoo Finance.
May came very close to being the priciest month for housing in nearly four decades, but thanks to an increase in income growth since the autumn of 2022, it narrowly missed the mark. A recent report by Black Knight revealed that the principal and interest payment for buying a home with a median price surged to $2,258 by June 22nd. This figure surpassed the previous high of $2,238 recorded in November, making it the highest payment ever recorded.
"According to Walden, the ability to lower demand by increasing interest rates has not only caused housing to become unaffordable in most major markets, but it has also created a serious lack of available homes. He points out that even if interest rates were to decrease, but not enough to motivate homeowners with mortgage rates below 3.5% to sell, it could result in a widespread increase in home prices throughout the United States."
Gabriella Cruz-Martinez holds the role of a financial journalist at Yahoo Finance. Stay updated with her work by following her on the social media platform Twitter @__gabriellacruz.
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