The number of homes for sale posted an annual decline for the first time in more than a year while falling to the lowest level on record, according to a new report.
Homes listed on the market dropped by 7.1 percent from a year ago in May to 1.4 million units on a seasonally adjusted basis, the report from real estate brokerage Redfin shows. This is 38.6 percent lower than pre-pandemic figures.
The Federal Reserve’s aggressive effort to bring down inflation by increasing interest rates has drastically cooled the housing market. Mortgage rates rose as the Fed tightened lending throughout the economy.
This has prompted many homeowners to stay put, with most holding on to mortgage rates well below the current 30-year average. Average mortgage rates have fallen slightly since the Fed’s announcement, dropping to 6.67 percent this week.
The central bank paused its rate increases for the first time in 15 months last week, but Fed Chairman Jerome Powell indicated more could be on the way over the remainder of the year.
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The dearth of homes for sale have also put pressure on home prices, Redfin’s report shows.
In May, the median home sale price was $419,103. This is down 3.1 percent from a year before, when prices hit a record high of $432,311.
“It’s too early to say that price declines have bottomed out,” Redfin chief economist Daryl Fairweather said in a news release. “Prices may have room to fall because mortgage rates could still rise.”
“The Federal Reserve just signaled that it is likely to continue raising interest rates this year. That could further hamper homebuyer demand and cause home prices to fall in the near term, though the drops would be minimal,” she added.
Meanwhile, separate data shows that home builders are moving to fill the inventory gap in the resale market.
New construction surged by 21.7 percent on an unadjusted basis in May, sailing past economists’ projections that there would be a small decline.
Relief on the way? New home construction surge in May could cool housing inflation
Housing starts increased to an annual rate of 1.63 million units last month, up from 1.34 million in April, according to Census Bureau data released Tuesday. Single-family and multifamily construction experienced monthly increases.
Single-family starts jumped by 18.5 percent over revised April figures to a rate of 997,000 units, while starts for buildings with five or more units was 624,000.