Home prices hit new highs in May as inventories remained horribly low

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US home prices hit a record high in May, largely reflecting severe inventory constraints, according to a new report.

Nationwide, prices rose 0.7% from April to an annualized rate of 8.9%, according to mortgage technology and data provider Black Knight. House prices have continued to rise since the beginning of the year, rising 0.1% in May compared to the same month last year.

The dramatic rise in prices was due to low inventory levels. The analysis shows that 95% of major markets have seen a significant drop in active listings this year, more than 50% below pre-pandemic levels.

The results highlight just how tough the housing market is, as homebuyers face rising mortgage rates and severe inventory shortages that push prices higher.

“There’s no question that the housing market is reigniting from a housing price perspective,” Andy Walden, vice president of enterprise research at Black Knight, said in a statement. “Price gains have completely reversed the rebound that lasted through the second half of 2022, with the seasonally adjusted Black Knights Home Price Index hitting a new all-time high in May.”

During an open house by Prudential Realtor Tracy Doe, interested buyers, realtors and brokers are pouring in visitors to and around this 1920s California bungalow in Highland Park.  (Credit: Allen J. Schaben/Los Angeles Times, via Getty Images)

During an open house by Prudential Realtor Tracy Doe, interested buyers, realtors and brokers continue to flock to and around this 1920s California bungalow in Highland Park. (Credit: Allen J. Schaben/Los Angeles Times, via Getty Images)

Big markets hit hard

Low resale inventory pushed home prices higher in May.

Home prices in at least 27 of the nation’s 50 largest markets, mostly in the Midwest and Northeast, will either return to their 2022 peak or hit highs in May, according to the latest report from Black Knight’s Mortgage Monitor. updated. Only eight of the top 50 markets had home prices 5% or more below their 2022 peak.

“Reheating is widespread,” Walden said in a statement. “Prices are still well below peak levels across the West and in many pandemic boom cities, but price stability in recent months is beginning to close the gap.”

For example, according to Black Knight’s research, San Jose experienced the largest month-over-month price increase of any market, with prices up 1.4%. They were followed by San Diego (1.1%), Los Angeles (1.0%), San Francisco (0.9%), Seattle (0.9%) and Sacramento, California (0.8%).

New price signs are posted near homes for sale in Palo Alto, Calif. (Credit: Paul Sakuma, AP Photo)

high or low? New price signs in Palo Alto, California (Credit: Paul Sakuma, AP Photo)

Austin, Texas is an exception, with home prices down 13.8% from peak, the largest gap of any market. Inventory levels in Austin were above pre-pandemic levels.

“Unlike Austin, most parts of the country have sales inventories going in the opposite direction,” Walden said.

However, new construction offered buyers a glimmer of hope.

Single-family homes account for 40% of all projects underway, but are still 30% below the 2005 peak, Blackknight said. The rise in new homes could attract more buyers to the market, economists said.

“Both new construction starts and completions were strong in May, which is welcome news,” Walden said. “However, most of the ongoing projects in the same month were not single-family residential (SFR) units, but multi-family units of five or more units.”

Mortgage interest rates are useless

Home price affordability hit its lowest level since the Reagan era this spring as mortgage rates remain firmly pegged in the 6% range and continue to prevent current homeowners from listing their homes. approached the point.

Sales inventories rose slightly, but were still down 51% from pre-pandemic levels.

More than 60% of existing mortgage holders and potential sellers have their mortgage rates below 4%, and many of them said they were “big enough to go public in this environment of high prices, low inventory and high interest rates.” It is a hindrance,” the report said.

The average principal and interest payment for a home this spring will require 35.7% of median household income, according to Black Knight. This is the highest pay-to-income ratio since about October 1985, when 36.01% of household income was required to pay for it, Black Knight’s Walden previously told Yahoo Finance.

The only reason May wasn’t the worst month to buy a home in 37 years was income growth from the fall of 2022. As of June 22, the principal and interest payments required to purchase a median-priced home have risen to $2,258 and are increasing year by year. Starting last November at $2,238, Black Knight found the highest payout ever.

“The same tools used to reduce demand — raising interest rates — have not only made housing affordable in nearly every major market, but have also led to severe supply shortages,” Walden said. rice field. “At the moment, even if interest rates fall, there could be a risk of a widespread reheating of home prices across the United States, even if not sharp enough to wean potential sellers from mortgages below 3.5%. be.”

Gabriela Cruz Martinez is a personal finance reporter for Yahoo Finance. follow her on her twitter @__Gabriela Cruz.

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