Home prices hit a record high in June, even as the housing market continued its post-pandemic pullback.
The median price of an existing home sold last month was US$ 435.300, surpassing the previous record, set in June 2024, according to data from the National Association of Realtors. But overall, sales hit the lowest level 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?
“Today’s housing market is really a tale of haves and have-nots,” says Jessica Lautz, deputy chief economist at the National Association of Realtors.
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 records — and people 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 home transactions right now. Many of them are doing so, including with cash purchases,” says Lautz. “They have the ability to engage with today’s housing market, where first-time buyers are being priced out.”
The housing market is stronger at the top
The strongest part of the market now is the high end. Homes above US$ 1 million saw the biggest increase in sales last month, up 14% from a year ago. As prices rise, more homes are now priced above the $1 million mark. An analysis by real estate brokerage Redfin last year found that 8.5% of homes in the U.S. were worth US$ 1 million or more.
This also reflects who’s buying now. Cash buyers accounted for 29% of transactions last month.
For first-time buyers and middle-income households, however, the market can be maddening. Although home price growth has slowed, the median price is now 48% higher than just five years ago.
Some people are biting the bullet and paying top dollar for a home, after years of saving or getting help from family. First-time buyers accounted for 30% of transactions last month.
And many others would love to buy a home now — but simply can’t afford it.
Many buyers are discouraged by high mortgage rates
There are significantly more homes for sale than a year ago, but inventory is still lower than pre-pandemic levels.
And elevated 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 the monthly payment.
“This is pricing buyers out of the market,” says Lautz. Mortgage rates are also discouraging people from selling, she continues: “We also know that the lock-in effect is real. People with lower-rate mortgages simply aren’t willing to make that move now, unless they have a lot of home equity.”
Ironically, if mortgage rates fell — as many people would like — it would stimulate more demand and likely push home prices even higher.
In that case, “a lot of people who have been pushed to the sidelines and can’t afford today’s market will jump in. And that will be really tough for someone trying to enter as a first-time buyer 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 what homes sold for recently with what they sold for in previous transactions.
With that data, researchers saw prices fall in 30 of the 50 metropolitan areas, with the biggest drops 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, senior market manager for Redfin in 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 rates force buyers to reassess what’s affordable.”
New homes can be cheaper than existing ones
Meanwhile, sales of new homes last month 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”.
When it comes to price, new homes used to be more expensive than existing ones. But now that’s no longer guaranteed.
The median sales price of a new single-family home sold last month was US$ 401.800 — nearly US$ 40.000 less than the median price of an existing single-family home.
There are several reasons for this: builders are now constructing smaller homes to meet the huge demand for starter homes. Existing homes may have location advantages. 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 indicator in 2022.
But the same interest rates keeping mortgage rates high are also making it more expensive to build new homes. Single-family housing starts hit the lowest level in 11 months in June, while permits for new construction fell to the lowest level in more than two years.
This supply impact is not good for home prices in the months and years ahead.
Source: npr.org by Laurel Wamsley