Home prices hit a record high in June, even as the housing market continues its post-pandemic decline.
The average price of a previously owned home sold in June was US$ 435.300, surpassing the previous record, set in June 2024, according to data from the National Association of Realtors (NAIA). But overall, sales figures hit the lowest rate in nine months, seasonally adjusted. Sales in June fell 2.7% from the previous month.
How can prices be so high when the market is so slow?
“The current housing market is made up of haves and have-nots,” says Jessica Lautz, deputy chief economist at NAIA.
While countless potential buyers remain on the sidelines, some people have plenty of money to spend. Wages continue to rise, the stock market is hitting record levels — and those who have a home to sell can use the profits from these high prices to buy the next one.
“Those who have home equity can make housing transactions now. They have the ability to engage with the current housing market, where first-time homebuyers are being priced out.”
The housing market is stronger at the top
The strongest part of the market right now is the luxury segment. Homes above US$ 1 million had the biggest sales surge last month, up 14% from a year ago. As prices rise, more homes reach prices above the one-million-dollar mark. An analysis by real estate brokerage Redfin last year found that 8.5% of homes in the U.S. were worth US$ 1 million or more.
This also reflects who’s buying right now. Cash buyers accounted for 29% of transactions in June.
For first-time buyers and middle-income earners, however, the market can be maddening. Although home price growth has slowed, the median price is 48% higher than just five years ago.
Some people are settling and paying top dollar for a home, after saving for years or getting help from family. First-time buyers accounted for 30% of transactions.
And many others would love to buy a home now — but simply can’t afford it.
Many buyers are deterred by high mortgage rates.
There are significantly more homes for sale than a year ago, but inventory is still lower than before the pandemic.
And high mortgage rates — currently averaging 6.74% — are discouraging potential buyers. For those trying to enter the market and buy their first home, these high rates, combined with high prices, mean they simply can’t make the numbers work. Every percentage point in interest can add hundreds of dollars to a monthly payment.
“This is keeping buyers away,” says Lautz. Mortgage rates are also discouraging people from selling, she continues: “We also know the lock-in effect is real. People with lower-rate mortgages simply aren’t willing to make that move now, unless they have substantial home equity.”
Ironically, if mortgage rates fell — as many people would like — it would spur more demand and likely push home prices even higher.
In that case, “many people who have been sidelined and can’t afford the current market will jump in. And that will be quite difficult for someone trying to enter as a first-time homebuyer to compete,” says Lautz.
Home prices aren’t rising everywhere
Redfin uses a different methodology from the National Association of Realtors to analyze home prices — it compares the price at which homes recently sold to the price at which they sold in a previous transaction.
Using that data, researchers saw price drops in 30 of the 50 metropolitan areas, with the biggest declines in Washington, D.C.; Austin, Texas; and San Diego.
In D.C., federal job cuts are just one factor in the decline, said Marshall Park, Redfin’s senior market manager for the D.C. metro area, in an online post. “But it’s not just layoffs. We’re also seeing signs of price sensitivity, as higher interest rates force buyers to reassess what’s affordable.”
New homes can be cheaper than existing ones
Sales of new homes last month, meanwhile, rose slightly from May but fell nearly 7% from a year ago. Wells Fargo analysts say the numbers reflect “weak buyer demand, resulting from challenging affordability conditions and greater economic uncertainty”.
In terms of price, new homes used to be more expensive than existing ones. But now that’s no guarantee.
The average sales price of a new home sold last month was US$ 401.800 — nearly US$ 40.000 less than the average price of an existing home.
There are several reasons for this: builders are now constructing smaller homes to meet the huge demand from first-time buyers. Existing homes may have an advantage in terms of location. And builders have some flexibility to cut prices as an incentive to buyers: 38% of builders said they were cutting prices in July, the highest share since the National Association of Home Builders began tracking the figure in 2022.
But the same interest rates keeping mortgage rates high are also making it more expensive to build new homes. Home construction starts hit the lowest rate in 11 months in June, while permits for new construction fell to the lowest rate in more than two years.
This impact on supply is not good for home prices in the coming months and years.
Source: npr.org by Laurel Wamsley