Home sales just posted their slowest May in 16 years

US existing home sales in May marked their slowest activity since 2009, declining 0.7% year-over-year, primarily driven by a severe affordability crisis where median home prices have surged 52% since 2019 against only 30% wage growth, effectively doubling monthly mortgage payments. While inventory has increased over 20% year-over-year, shifting some markets towards buyers and notably impacting condo sales down 10%, overall home prices still rose 1.3% year-over-year, the slowest pace since June 2023. The market's future hinges on potential Federal Reserve rate cuts, which could stimulate sales if they translate to lower mortgage rates, leveraging strong income growth and improved inventory levels.

Analysis

The U.S. existing home sales market demonstrated significant weakness in May, recording its slowest pace for the month since 2009 with a 0.7% year-over-year decline. This slump is primarily attributed to a severe affordability crisis, highlighted by a 52% surge in median home prices since May 2019 that has far outpaced the 30% gain in wages over the same period, effectively doubling the typical monthly mortgage payment to over $2,000. Despite the low sales volume, a notable market shift is occurring on the supply side, with inventory up over 20% from a year ago, particularly in the West and South. This has not yet translated to broad price declines, as the median home price for all housing types still rose 1.3% year-over-year, albeit the slowest growth rate since June 2023. The market shows clear segmentation, with the condo sector experiencing acute distress; condo sales fell 10% year-over-year, and data from Redfin indicates sellers outnumber buyers by 83%. The overall market remains in a holding pattern, contingent on a potential moderation in mortgage rates, with the National Association of Realtors suggesting that Federal Reserve rate cuts later in the year could stimulate activity if they flow through to consumer borrowing costs.

Key Decisions for Investors

• Given the sluggish sales volume and severe affordability constraints, investors should remain cautious on broad exposure to US residential real estate and consider underweighting homebuilders and mortgage lenders until a clear catalyst for demand emerges.
• The acute weakness in the condominium market, evidenced by a 10% sales drop and a significant surplus of sellers, warrants a bearish stance on assets with concentrated exposure to urban multi-family real estate.
• Investors should closely monitor Federal Reserve communications and Treasury yield movements, as a definitive pivot toward rate cuts is positioned as the primary catalyst that could unlock pent-up demand and reignite sales volume in the second half of the year.