High Mortgage Rates and Rising Prices Weigh on May Home Sales: Market Remains in Slump Despite Slight Increase in Sales

HarperBusiness2025-06-262230

Sales of previously occupied U.S. homes edged higher in May, but the market remains in a slump as stubbornly high mortgage rates and rising prices make homebuying less affordable. According to the National Association of Realtors (NAR), existing home sales rose 0.8% last month from April to a seasonally adjusted annual rate of 4.03 million units. However, the sales pace was the slowest for the month of May since 2009, when the market was still reeling from a housing crash.

The U.S. housing market has been in a slump since early 2022, when mortgage rates began to climb from pandemic-era lows. Home sales fell last year to their lowest level in nearly 30 years, and the average rate on a 30-year mortgage has remained relatively close to its high so far this year of just above 7%, according to mortgage buyer Freddie Mac.

Home prices continued to increase on an annual basis for the 23rd consecutive month, although the rate of growth slowed. The national median sales price rose 1.3% in May from a year earlier to $422,800, an all-time high for the month of May but the slowest annual price growth since June 2023.

NAR's chief economist, Lawrence Yun, said that the relatively subdued sales are largely due to persistently high mortgage rates. "Lower interest rates will attract more buyers and sellers to the housing market," he said.

The inventory of homes on the market continued to increase, with 1.54 million unsold homes at the end of last month, a 6.2% increase from April and 20.3% higher than May last year. That's still well below the roughly 2 million homes for sale that was typical before the pandemic, however. May's month-end inventory translates to a 4.6-month supply at the current sales pace, up from a 4.4-month pace at the end of April and 3.8 months in May last year. Traditionally, a 5- to 6-month supply is considered a balanced market between buyers and sellers.

One reason for the pick-up in for-sale inventory is that properties are taking longer to sell. Homes typically remained on the market for 27 days last month before selling, up from 24 days in May last year, NAR said. As the number of homes for sale increases and the pool of home shoppers who can afford to buy declines, it can heighten pressure on sellers to lower their asking price or offer other buyer-friendly concessions. Consider that some 28% of homes sold above their list price last month, down from 30% a year earlier.

Many homebuilders have also been lowering prices and offering sales incentives such as mortgage rate buydowns to entice prospective home shoppers at a time when the supply of new homes is running at around 8 months. "We're moving from a pretty seller-friendly housing market to one with more balance," said Danielle Hale, chief economist at Realtor.com. "This means we're seeing more buyer-friendly market signals than we have in years."

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