Home buyers keep paying.
The main points
- In May, home prices rose 14.8% from a year earlier.
- Lower inventory helped boost property values upward.
Buying a home in May means paying a premium for many buyers. But how expensive are homes? The National Association of Realtors has some answers.
The median price of an existing home sold in May rose to $ 407,600. That represents a 14.8% increase over the previous year. To be clear, $ 407,600 applies to existing home sales – not new construction sales.
Why did home prices soar in May?
Since the beginning of 2022, mortgage rates have skyrocketed, making it even more expensive for buyers to buy a home. In light of that, you’d think buyers would be out of the market at a rapid clip, causing home prices to go down. But it’s not clear in May.
Now notice that the pace of home sales slowed in May. In fact, existing home sales are down 3.4% compared to April and 8.6% lower since May 2021. But that slowdown did not affect home prices and the reason boils down to limited inventory.
By the end of May, only 1.16 million homes were available for sale. That represents a 2.6-month supply. But for the occasion, it takes 4 to 6 months of housing supply to create an equal housing market. Right now, the housing market is more favorable to sellers, but buyers have been struggling to pay more for homes for several months.
Are home prices starting to fall?
To make home prices more moderate, the supply of available listings must meet buyer demand. And so home prices are likely to remain high until inventory picks up in a meaningful way.
Now some buyers may be encouraged by May’s sluggish sales pace. But remember, home selling is not just a buyer’s demanding act. They also rely on inventory.
If a given store sells 1,000 TVs a month and 800 TVs a month, this is not an indication that buyer demand for those TVs is low. Instead, the store may have less product to sell and therefore its sales numbers may be lower. This is very much the case now in the housing market, so buyers should not expect a slow May sales pace to indicate a price drop.
If housing inventory slowly but surely rises in the coming months, we could see prices decline. And to be clear, inventory There is Picking up – at a bit of snail pace.
Can you afford a $ 407,600 house?
If you are keen to buy a home soon, you will need to do your financial assessment to see how much home you can afford. As a general rule, your housing costs, including your mortgage payment, property taxes and insurance, may not exceed 30% of your take-home payment. So you need to crunch some numbers to see what your paycheck allows you to handle.
You will find that $ 407,600 home can be reached. Or, you may find that you need to limit yourself to a lower price.
Finally, setting the average home price is not very helpful, because if the homes in your target market are selling at different prices, it will be more relevant to your purchase plans. But either way, make it a point to stick to that 30% threshold so that no matter where you are buying, home prices will not roll over your head at a time.
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