Existing home prices down $18k from June 2022 peak to $396,100. Is this affordable?

Sales of existing homes rose slightly by 0.2% in May after declining 14 of 15 months through April. Per the latest NAR data for May, existing home prices are $396,100. Is this affordable? Let’s take a quick look at this and other key stats.

EXISTING HOME SALES & PRICES MAY 2023

– Sales of existing (as opposed to newly built) homes was 4.30 million for May (annualized, seasonally adjusted).

– This is up 0.2% from April and down 20.4% from one year ago.

– Besides rising slightly in February and May 2023, existing home sales declined 14 of 16 months through May.

– Available inventory of homes to buy is super low at 1.08 million units, but up a bit (3.8%) from April.

– Median existing home prices rose $7,300 from $388,800 in April to $396,100 in May.

– Today’s $396,100 median home price has dropped $17,700 from the June 2022 peak of $413,800.

– Lower prices since last June is an important trend because existing home sales are 86% of all sales (sales of newly built homes are the other 14%).

– So a strong majority of homes for sale in America are lower in price since last summer.

– But as you can see in the chart above, prices are rising again recently.

– NAR uses median prices because they say average prices are skewed higher by a small share of high-priced sales.

– This downward price trend might give relief to buyers even as inflation keeps rates high.

– Rates as of now are 6.875%.

– Existing homes typically remained on the market for 18 days, and 74% of them sold within a month.

– This means low inventory is still causing a lot of competition in the housing market.

– First time buyers were 28% of sales, cash buyers were 25% of sales, and individual investors or second home buyers were 15% of sales.

HOME AFFORDABILITY SUMMER 2023

– Speed of sales — May deals closed in 18 days — suggests consistent demand for low inventory.

– Organized, pre-approved buyers can compete in this market.

– Monthly cost on a $396,100 home purchase with 5% down and today’s 6.875% rate is $3228 (mortgage payment, insurance, taxes, mortgage insurance).

– If you had no other monthly debt, you’d need to make $90k* per year to qualify for this.

– If you had $600 in credit card, auto, and other monthly debt, you’d need to make $107k* per year to qualify.

– Buyers holding for a home price crash may not see that because of buyer demand and low inventory.

– This might be the best this cycle gets for 2 reasons.

– First, demand will rise as stubbornly high inflation wanes and mortgage rates follow.

– May CPI inflation is down to 4.1%, but Core CPI stayed stubbornly high at 5.3%.

– Rates will follow inflation down as the Fed remains committed to beating inflation.

– Housing demand will rise as rates fall, and this will challenge affordability.

– Second, despite weaker home sales in the past 16 months, the MBA predicts home sales will rise later this year and next year.

– Here’s the chart showing that trend. If home sales increase like this, home prices may rise again.

Please reach out with questions.

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Reference:

– Newly built home prices $420,800 to start summer 2023. Can you afford this?

– Rent In CPI Still Too Damn High, But Inflation (and Rents!) Dropping

– Existing Home Sales Edged Higher by 0.2% in May (NAR)

* To arrive at these qualifying income numbers, The Basis Point uses 43% deb-to-income ratio that Federal regs allow for all mortgages of this size in America. We use Mortgage News Daily for rates.