U.S. Home Prices Surge to Near Record Highs Amid Inventory Shortage
U.S. home prices continued their upward trajectory in June, reaching near-record highs, driven by an intensifying inventory shortage that has left many prospective homebuyers unable to enter the market. According to a recent report from real estate brokerage firm Redfin, median home prices surged by 1.9% in June compared to the previous month, reaching $426,056. Although prices are down slightly by 0.6% compared to a year ago, they remain just 1.5% below the record high set in May 2022.
The housing market is experiencing an exceptional situation, with high demand but limited supply. Redfin’s chief economist, Daryl Fairweather, noted, “Today’s housing market is extraordinary; it feels hot even though there are very few homes changing hands.” The scarcity of available homes for sale is the primary factor driving this trend.
Many sellers who secured low mortgage rates before the pandemic are now hesitant to sell, as rates continue to hover near a two-decade high. This reluctance has left potential buyers with limited options in the market. A recent report from Realtor.com revealed that the number of homes available for sale in June was over 47% lower than the typical pre-pandemic levels in early 2020.
Fairweather explained, “Sellers are getting multiple offers if their home is priced well and in a desirable area, even though there aren’t a lot of buyers out there. That’s because house hunters have so few homes to choose from. More buyers are starting to come out of the woodwork as they get used to elevated mortgage rates, which is making the market feel even hotter.”
Although the Federal Reserve’s aggressive interest rate hike campaign initially cooled the red-hot housing market by sending mortgage rates above 7%, rates have been slow to retreat. As buyers adjust to the new rates and compete for limited supply, home prices are once again on the rise. The current rate for a popular 30-year fixed mortgage is approximately 6.96%, significantly higher than the 5.51% rate recorded a year ago and the pre-pandemic average of 3.9%.
While mortgage rates are expected to gradually decline as signs of high inflation dissipate, the decrease is unlikely to be substantial enough to bring a “critical mass of sellers back to the market anytime soon, meaning housing supply should remain low,” according to the report. The decline in inventory is evident as the total number of homes for sale plummeted 15% in June compared to the previous year, reaching an all-time low. Additionally, new listings dropped by over 30% year-on-year to around 450,000, marking the lowest level and largest annual decline on record, excluding April 2020 during the onset of the pandemic.
The inventory shortage is widespread across the country, with 95% of major markets experiencing a decline in housing inventory, according to a separate report from Black Knight. The most significant declines occurred in Western cities, including Phoenix, Arizona; Boise, Idaho; Ogden, Utah; Colorado Springs, Colorado; and San Francisco. Moreover, more than half of the nation’s 50 largest housing markets, primarily concentrated in the Midwest and Northeast, have either reached their previous home price peaks or set new record highs as of May.
As the U.S. housing market continues to grapple with constrained supply and surging prices, prospective buyers face mounting challenges in finding affordable homes. The ongoing inventory shortage underscores the need for innovative solutions and increased construction activity to address the growing demand and restore balance to the housing market.
