Recently, major U.S. real estate indicators have been signaling a market downturn. According to the S&P CoreLogic Case-Shiller Home Price Index, released by Dow Jones, home prices rose 3.4% year-over-year. However, this figure fell short of Dow Jones’ forecast of a 4.1% increase and was also lower than the 4% rise recorded in April of the previous year. This indicates that home prices in the 20 major U.S. cities have been steadily declining since peaking at 7.5% growth in February of last year.
Contrary to market expectations, with mortgage rates hovering near 7%, buyers are stepping back from the market, and inventory is steadily increasing. The Federal Housing Finance Agency (FHFA) House Price Index, which tracks price fluctuations of privately-owned homes based on mortgage data from Fannie Mae and Freddie Mac, also fell 0.4% month-over-month to 434.9. This decline is the largest in 2 years and 8 months, since August 2022, and significantly missed market expectations, which anticipated a 0.1% increase. Year-over-year, the index rose only 3%, marking the lowest annual gain since May 2023.
Housing transactions have also slowed as prices rise. Existing home sales—which make up about 90% of all housing transactions in the U.S.—reached only 4.03 million (annualized) in May, down 0.7% from the same month last year. Inventory increased to 1.54 million homes, rising 6.2% month-over-month and 20.3% year-over-year.
New home sales in May also fell to the lowest level in seven months. The number of new home sales in the U.S. was 623,000 (annualized), down 13.7% from the previous month and 6.3% year-over-year. This result missed market expectations—economists, including those surveyed by Reuters, had forecast 693,000 sales—falling short by about 70,000 homes. This was the largest gap in three years.
Real estate economists explained, “Although the number of homes on the market, including new listings, is increasing, the overall housing supply remains insufficient. However, rising home prices and mortgage rates are high enough to keep buyers away.” They added, “Market risk is growing, and we are seeing an increasing number of contract cancellations by buyers.”
The Housing Market Index (HMI) for June, reflecting the confidence of homebuilders amid declining home prices and slowing sales, also fell to its lowest level since December 2022. According to the U.S. Department of Commerce, the June HMI dropped to 32, falling short of market forecasts by 4 points.
Breaking down the HMI:
- The current sales conditions index fell to 35, the lowest since 2012.
- The six-month sales outlook index declined by 2 points to 40.
- The buyer traffic index, reflecting the number of potential buyers, dropped 2 points to 21.
As market indicators deteriorate, homebuilders are increasing incentives to clear inventory. Last month, 37% of homebuilders reported lowering prices, the highest rate since 2022. Additionally, 62% of builders offered various incentives, including price reductions.
A representative from a homebuilding company stated, “We are actively offering various incentives to attract buyers, but rising home prices and growing economic uncertainty continue to shrink the pool of potential buyers.” They added, “We plan to continue offering promotions to drive demand in the second half of the year.”
New Jersey Realtor Richard Choi
New Jersey Korean Realtor Richard Choi
