Existing home sales managed a minuscule uptick in the US last month, data released on Monday showed.
Believe it or not, the 0.8% increase from April to May counted as a good result. Consensus expected a 1.3% decline.
Despite the upside surprise, the 4.03 million annual pace is very subdued. There’s no respite from the resale market malaise.
As the figure shows, the spring home-buying season was a bust.
There’s no mystery here: There simply aren’t enough people who can afford to buy. By appearances, America’s “inventory” of renters with i) a 750 credit score, ii) $80,000 cash and a iii) $100,000 annual income, is almost depleted entirely. Those are the three boxes you need to check if you’re going to buy the “typical” US home comfortably. (Note the emphasis.) Depending on who’s loaning you the money, you’re also going to need to show $50,000 or so in liquid reserves on top of your downpayment.
One aspect of this rather vexing national quandary that probably doesn’t get enough attention is the psychological calculus for any remaining renters who can check those boxes. If you’re renting in a “typical” locale — so, not some hugely expensive metro like New York — and you have near-perfect credit, a six-figure annual income and six figures in the bank (cold, hard cash), you’re rich. I mean, not really. Not actually rich, of course. But you’ll feel like it on most days, because between your cash reserves, your income and your credit lines, you’re generally impervious to financial ruin because you’re not on the hook for the one thing that can (and does) dent the finances of otherwise well-to-do people: Huge home repairs. Moreover, you’re uncommitted. The only obligation you have is to stay out your lease, but with $100,000 in the bank, you could theoretically buy it out, rent a U-haul and be gone the next day.
If that’s you, you’ll be forgiven for balking at the idea you should trade your freedom for a Hardie siding box which doesn’t even look all that impressive today, never mind what it’s going to look like 30 years from today when you finally pay it off right around the time you get your first knee replacement. The rub, though, is that if you keep renting in perpetuity, there will come a day when you do that math. The math which, depending on how long you’ve been renting, suggests you’d be sitting on a quarter million or more in home equity had you chosen the Hardie siding box. Regardless of how much fun you had being a “rich” renter, that’ll be a depressing come-to-Jesus moment. The US housing market’s set up to make you “house rich.” If you refuse to play the game, the system will penalize you and you’ll probably regret it eventually.
Anyway, the reality for the US housing market as we sit here today, in June of 2025, is that mortgage rates need to come down a lot and prices need to come down a little or listings will pile up and sit on the market.
“The relatively subdued sales are largely due to persistently high mortgage rates,” NAR Chief Economist Lawrence Yun said Monday. “If mortgage rates decrease in the second half of this year, expect home sales across the country to increase.” “If” being the operative word.
The median existing home sale price in May was $422,800, according to the NAR update. That was a new record for the month.
As the figure shows, price gains are slowing, and it’s not far-fetched (at all) to suggest we could see several months of YoY price declines later this year.
That said, we’re talking about a market where prices posted monumental gains in the two years after the pandemic followed by a fleeting streak of remarkably small (in the context of the sky-high YoY comps) declines, only to rebound and post 23 straight annual increases.
If you’re still on the sidelines and you’re not happy about it, this situation’s demoralizing on hopeful days. On all the other days, it’s just a joke, where that means the prospect of homeownership is now so distant as to warrant a despairing chuckle.
The math here isn’t especially complicated. Even if you assume a 100bps decline in mortgage rates and a 10% drop in home prices, the numbers still won’t work for a lot of “typical” people if by “work” you mean they’ll be able to afford to the “typical” home.
“Prices are at an all-time high even though this spring’s housing market is fairly cool because prices don’t yet fully reflect the historic imbalance of sellers and buyers in today’s market,” Redfin’s Dana Anderson remarked, in an update dated June 20.
Anderson was referring to the preponderance of sellers illustrated above. There are nearly half a million more of them than buyers and yet, home sales are depressed.
In a separate Redfin article, Lily Katz noted that although prices are perched at a record, price growth is running “at the slowest clip since 2023.” Active listings, she went on, hit a five-year high last month, when the typical home sat on the market for 38 days.
This is gridlock. The inventory’s there. And sellers are beginning to come around to the reality that they don’t hold all the cards anymore. What’s missing, I think, is a realization that the composition of the buyer pool is quite a bit different now than it was even six or nine months ago.
Sellers are marketing to people for whom the math really doesn’t work. It’s not just — you know — “Tell them they can keep the armoire and we’ll put a fresh coat of paint on the great room.” People need price breaks. Meaningful price breaks. The kind of price breaks that are indicative of a buyer’s market where all the buyers are broke. Because that’s where we are.
Mortgage rates to clear the market probably need to correct by at least 200 bps- at least for a 5-year arm- 150 basis points for a 30 year. Prices need to lag income growth for 5 years. That likely happens soon. But a quick adjustment won’t take place.
We really have put the painful lessons of 2008 behind us, or we think we have. Historically the housing cycle is the economic cycle. It must be different this time. I guess AI + VR = we get to live in SimCity so who cares how cramped our shipping container is.
I’m closing in on my first knee replacement, and sitting in my very small apartment I’ve rented for 23 years in a metro area with stratospheric housing prices, I still have zero regrets about never having experienced the bliss of home ownership. The absence of the stresses and efforts of home ownership, which I have at least witnessed through friends, would be fair compensation for not having the math of equity on my side at this point even if I hadn’t lived in a period of equity outperformance and been able to invest several thousand dollars more a month than I would have if I’d had a mortgage.
Of course, when one has this kind of good luck, one is tempted to credit their sound judgment, when in reality, I was just too lazy to buy a house, wanted the optionality of renting, and was lucky enough to live in a rising tide of equities. Had I tried this starting on November 14, 1972 when the market peaked for 10 years, I’d probably be one of the people staring at the math despairingly as I approach the knee surgery.
Obviously, a rent vs buy analysis is a complex analysis- and shouldn’t only consider the financial aspects of the decision.
However, if someone invested $100,000 in SP500 for 30 years (instead of making a down payment on a home), using the historical last 30 year SP500 return of 7.92% (inflation adjusted and assuming dividends are reinvested), in 30 years (2055), the value would be $984,143.
In order for a $422,000 home to be worth the same $984,143 in 30 years, the annual appreciation (after inflation) would have to be 2.85% over that same 30 year timeframe.
My personal experience makes me question whether, from a financial perspective, it is a good idea to buy, instead of rent. We purchased a 1920’s home in a Chicago north shore suburb in 1995. We sold it in 2006 for about the same amount we had paid for it, including all costs of major renovations (I never tracked the relatively minor dollar amount, but numerous, renovation costs) and square footage additions. If I had purchased the same home in California in 1995, I would have likely done significantly better (financially).
Having said this, I certainly enjoyed owning our home while my kids were growing up.
I have a younger friend who rents with his wife here in L.A. They are in their 40’s now and have no kids. For years now I have been trying to talk him into saving money so they can snag a decent condo or something once the housing market loosens up and mortgage rates perhaps come down a bit. He has shown little interest. They are of a younger generation that values “life experiences” over other things now. They just left on a European vacation that is probably going to cost them somewhere between $10,000-$15,000. Buying a home–especially in SoCal–is a great long-term investment, and a good use of leverage too, but sky high prices, higher than before mortgage rates, ever increasing insurance costs, and property taxes are making it just too difficult for some people to reasonably imagine anymore. I wish them luck. They are not twenty-somethings anymore.
Swap LA for NYC and I’m your friend.
When you’re not planning to leave a property to children that takes a large dent out of the benefit of home ownership.
In NYC now, the maths just doesn’t make sense to buy. I’ve tried very generous assumptions but still I can’t make it make sense. My monthly payments would triple! I’d rather take that extra cash – put it in the markets and go on more vacations!
And when you add the benefit of flexibility and no housing stress in the form of unforeseen repairs etc. there is a lot to be said for renting.
I’ve never lived in the same place more than my current home of five years and i have very itchy feet. If i wasn’t paying below market, I’d move just for the change.
As an aside, because of property tax in the US, I’d argue you never truly own a home anyway, you rent it off the government. It blew my mind when I moved here and found out about property tax. The idea that you can own property without a mortgage and yet the government can take it off you because you can’t pay an ever increasing tax burden on it just seems so deeply counter to American values.
Investment A: unlevered, returns taxed annually as mix of capital gains and ordinary income, no utility (other benefits), can be one-time or ongoing investment, liquid, typical fees and carrying costs 0.5-1.0%/year.
Investment B: levered 5:1 with borrowing rate 10Y +250bp with interest tax-deductible and debt non-recourse, returns tax-deferred, tax-exempted up to $250K, potential tax-free rollover into other investment, and if taxed then as capital gains, requires monthly investment, utility includes shelter and additional borrowing capacity, illiquid, typical fees and carrying costs appx 3.0%/year.
Currently both investments are trading at historically high valuations with yellow lights flashing for one and orange for the other. With a shorter term investment horizon, I’m not sure either looks compelling.
I wonder if buying logic has changed in recent years. Are buyers factoring in climate change issues (Helen, I think we should stay put in the rust belt after hearing that Florida is getting hotter, the hurricane threat grows, beaches are closed due to red tide and insurance costs are sky high) among others. Buying a home is a big step, specially the first one. Maybe now is not the time to take a chance given the increasing volatility of economic and social infrastructure. Sit tight and ride out the storm.
I was just in a Jersey shore town, literally next to Atlantic City, this weekend. The number of new-build, luxury 3- & 4-story homes that were recently completed was surprising. Of course, those plans to buy, tear-down and rebuild likely hatched a couple of years ago, though that was still after the Fed hikes. But I guess the vacation housing market still seemed robust enough then. I’m sure there are a few speculators who feel like they might as well have put all that money on ‘red’ on an A.C. roulette table now that the buyers have disappeared. I truly wish them luck, I can imagine the sleepless nights wondering if they’ll make it out without a huge loss.
I live in a 55 plus community where last month a unit sold over the weekend for ask price.
I think another issue is we have the highest proportion of 18-29yr olds living at home with their parents since the 1940s, more than half, and a lot of young people fall into one of two camps.
Camp 1: I’m going to inherit a house, why bother saving.
Camp 2: This is the most unaffordable housing market in history, I’m never going to be able to afford one, why bother saving.
This has probably helped consumption over recent years.