State of the Housing Market: Redfin Reports Record Median Home Price; New Listings Outpace Pending Sales

According to a May Redfin report, pending home sales fell 4.3% year-over-year (YoY) for the four weeks ending May 12th, marking the largest YoY decrease in three months. Pending home sales also declined week-over-week (WoW), which is unusual for the spring homebuying season. 

“With rising mortgage rates, buyers that have no choice but to move—especially those that were waiting on the sidelines last year—might feel a sense of urgency to lock in lower rates before they increase further,” said Keller Williams New York City real estate agent Sandy Edry. “This could lead to a higher volume of buyer activity as they try to secure deals before rates become less favorable.”

“Unfortunately, it’s all about price. Sellers have delayed listing their homes because they fear buyers won’t be able to pay the prices the sellers need to achieve due to persistently high interest rates,” said BOND New York real estate agent Albert Safdie. “Until interest rates come down considerably, there is no great strategy to stimulate more sellers to enter the marketplace.”

Inventory levels are at a three-year high as of mid-May. New listings rose 10% YoY but were flat compared to one week ago. Examining the general trend, new listings are increasing faster than in 2023. How critical is this for stabilizing the market?

“Increasing inventory is critical for stabilizing the market by balancing supply and demand, mitigating price spikes, and providing more options for buyers,” said Edry. 

“Some sellers should consider pricing below market to ignite bidding wars from sidelined buyers who might jump in if the price is perceived as too tempting to pass up. Otherwise, it’s going to be a waiting game,” said Safdie.

Redfin attributes the housing market’s challenges to “sky-high housing costs.” The report goes on to say, “The median U.S. home sale price is up 4.7% year-over-year to a record $386,951, and the monthly mortgage payment is sitting at $2,858, just $26 shy of the all-time high set in April.”

“Buyers may need to adjust their expectations regarding the type or size of the property they can afford due to the higher mortgage rates,” said Edry. “This could mean prioritizing certain features or compromising on others.”

“Home values could once again be driven up into a price bubble, eventually limiting many buyers’ borrowing power, pricing some purchasers out of the market, with more all-cash sales winning bidding wars, fewer mortgages being issued, and a wave of potential market gridlock all before the Fed’s much anticipated ‘soft landing’ is achieved,” said Safdie.

However, Redfin says that affordability is starting to improve. Home prices are increasing, and daily average mortgage rates fell slightly below 7% in May due to a better-than-expected April Consumer Price Index (CPI) inflation report released on May 15th. However, according to the May Mortgage News Daily report, mortgage rates have risen again, climbing to 7.09% for a 30-year fixed-rate mortgage. Over the past month, rates have decreased by 50 basis points since April 30th. One year ago, mortgage rates were at 6.69%, representing an increase of 30 basis points from the previous year.

“Higher mortgage rates could dampen some buyers’ ability to afford homes, leading to potentially fewer offers on properties,” said Edry. “Sellers may need to adjust their expectations regarding the number of offers they receive or be prepared to negotiate more on price.”

“In the near term, current home sellers will end up reducing prices to sell their homes before interest rates come down,” said Safdie. “The longer-term result will reveal a market of pent up inventory and pent up buyer demand, with both sides eager to enter the market as soon as home financing is once again a tenable proposition for buyers.”

That being said, mortgage rates decreased during May, but what prompted this change? According to Safdie, “The residential resale market entered 2024 with optimism based on the consistently declining inflation statistics during the second half of 2023. Everyone was hearing the key to lower mortgage rates is lower inflation near 2% annually, and the market was on track. Home sales ticked up between late January to late February as the CPI hovered below 3.2%.”

According to the Investing.com economic calendar, market reactions were influenced by the May 15th CPI report (to view the data, type in “May 15th” on the calendar). Core CPI, a figure closely monitored by the Fed to determine future changes to the federal funds rate and other monetary policies, is important because it excludes volatile energy and gas prices. The Core CPI gain stood at 3.6%, in line with forecasts but below the 3.8% recorded in March. Also, the month-to-month change increased by 0.3%, consistent with predictions but also below March’s 0.4% levels.

The Investing.com U.S. Core Consumer Price Index (CPI) YoY data shows the 3.6% gain, but the graph indicates that this is actually the slowest increase in Core CPI on a YoY basis since April 2021. Despite inflation trending downward since late 2022, a positive sign, the month-to-month reading of 0.3% represents the slowest monthly increase since December 2023. Consequently, the April CPI report indicated a slight easing of inflation, prompting a marginal decrease in mortgage rates during May. However, the swift resurgence of rates signifies growing financial apprehension that the economy continues to grapple with elevated prices across all commodities and energy products.

“I listed a townhouse in the Ft. Greene neighborhood of Brooklyn at a record setting high of $4,650,000, and within two weeks, the home was in contract to an all-cash buyer (no financing),” said Safdie. “When March inflation numbers were announced, with news of a 3.5% CPI, with over 300,000 new jobs added for that month and with retail sales showing spending up 4% year-over-year, both financial markets and real estate sales slowed almost to stagnation, as both buyers and sellers paused to consider their next moves.”

“I think we’re all still trying to figure this out. We went from thinking the Fed would decrease the Fed rate three times starting in Q1/Q2 and then pushed that projection into later in the year. And now there are indications that if things aren’t brought under control, we might even see another rate increase,” said Edry. “That’s a lot of whiplash in a short period of time and will take the market (and the consumer) a bit longer to suss out. But, no matter what, if rates continue to creep up, it will take a lot of the energy out of the current market.”

Is real estate activity declining so soon in the year? Both buyers and sellers seem to be feeling the pinch. Redfin states that future home-price increases may soften with 6.3% of home sellers dropping asking prices, the highest share in over a year. The Redfin report data shows that loan applications to buy a house decreased by 2% last week and are down 14% from 12 months ago. Redfin’s homebuyer demand index fell to the lowest levels in two months and is down 13% from one year ago. Google searches are down 8% from a month ago and fell 15% YoY.

“Now that conventional mortgage rates are once again above 7%, the market has chilled for both buyers and sellers,” said Safdie. “Many would-be buyers are suspending their searches and renewing their leases for another year rather than signing long term mortgage commitments above 7%.”

Redfin’s key housing market data for the four weeks ending May 12th includes stats from over 400 U.S. metro areas. The median sale price is just under $387,000, up 4.7% YoY, an all-time high. The median asking price increased to $418,455, up 6.6% YoY, another record. The median monthly mortgage payment rose to $2,858 at the current 7.09% mortgage rate, an increase of 13% YoY, just below the record high set two weeks ago.

Redfin’s data shows that 49 of the 50 largest U.S. cities reported home price gains compared to 12 months ago, with San Antonio, TX, showing the only decrease at -0.5%. The largest increase was Detroit, MI (18.8%), followed by Anaheim, CA (18.6%), West Palm Beach, FL (16.2%), San Jose, CA (13,6%), and Newark, NJ (11.7%).

Redfin’s Data Center (Click on “Median Sale Price”) shows that on a national level, the median sale price has risen by 5% YoY to reach $387,000. This surpasses the previous peak of $383,000 recorded in 2022. This contrasts with the $328,000 price recorded at the same time in 2021. Notably, this year’s YoY increase marks a departure from the downward trend observed last year (-3%), with significant increases in 2022 (16%) and 2021 (22%). The current median sale price aligns with historical norms, typically experiencing growth within the 3% to 6% range. It is considered abnormal for prices to decrease or for home prices to increase by more than 15%.

Redfin’s data (Click on “New Listings”) shows that new listings in all Redfin metros increased by 10% (still lower compared to 2021–2022 but up from 2023), yet pending home sales decreased by 4.3%, a three-year low YoY, indicating that future closed home sales may remain subdued. 

While home sales are on par with last year’s levels (Click “Homes Sold”), up by 2.5%, they fall short of those seen in 2022–2021. Active listings surged by 14.16%, hitting the highest levels in at least the past three years during the same time frame. 

The increasing inventory coupled with declining demand hints at softening home price growth. So, how do record-high home prices persist despite inventory levels reaching a three-year high for the month of May?

Redfin’s report reveals a significant increase, with the share of price reductions reaching 6.3%—easily a three-year high for this time frame and approaching a three-year high for any month. The previous high of 6.7% was set in November 2022. By comparison, in May 2022, the share of price drops stood at 3.3%. In early 2022, it was at 2.4%, whereas in 2024, it reached 5.4% during the same period. 

Again, how do all-time record highs for home prices coexist with a share of price reductions at a three-year high during the same time frame, extending back to February this year?

“Low buyer traffic drives price reductions, as does a lack of offers or other negotiations,” said Safdie, “Time on market is the number one driver of price drops, which we’ve recently determined are happening sooner than they had been last year. The first price drop in Q3 and Q4 came around 45 days on the market.”

“While the number of sales transactions have decreased, the overall volume of sales remains high. That indicates that prices, for the most part, held strong. We see that with the median sales price mentioned above, too,” said Edry. “So, I’d argue that for the most part, these price decreases are bringing pricing back towards the historical average. The increase in price-reduced homes could be driven by factors such as heightened seller competition, buyer resistance to higher prices amid rising mortgage rates, or properties initially overpriced. I’d call it more of a correction in pricing.”

Redfin’s data on the 50 largest U.S. metros reveals that pending home sales increased in 12 areas but declined in 38 compared to one year ago. Leading the nation with the largest pending sales increase is San Jose, CA (16.6%), followed by Anaheim, CA (9.2%), San Francisco, CA (5.3%), Newark, NJ (5.2%), and Sacramento, CA (3%). In contrast, pending sales fell in Phoenix, AZ (-14.9%), Atlanta, GA (-13.6%), Houston, TX (-13.2%), West Palm Beach, FL (-11.8%), and Nashville, TN (-11.1%).

Regarding new listings, they decreased in six metros and increased in 44 compared to the previous year. The largest increase in new listings occurred in San Jose, CA (40.2%), while the most significant decrease was seen in Chicago (-8.1%). This trend of increasing new listings and declining pending home sales, as seen in the May data, is concerning.

“This season, many sellers will list at their aspirational dream price, and if they don’t experience strong buyer traffic and offers in the first few weeks, the price is reduced in about 30 days now!” said Safdie. “At least one-third of all active listings are showing price drops, so this is a significant moment where we could see signals of a buyers’ market caused by the standoff between buyers who can’t afford or won’t pay high mortgage interest rates and sellers who need to get a certain amount of revenue out of their home sale. Last week, the average listing discount at closing was 7.7%.”

That being said, why are home prices higher now compared to 2022, especially when the statistics clearly indicated all-time record highs then? During early 2022, houses sold quickly, often well over asking price, and the share of price reductions was at very low levels. However, the current situation appears to be quite the opposite, except in the case of home prices. 

Numerous factors contribute to this phenomenon. Referencing the April 18th Freddie Mac U.S. Economic, Housing and Mortgage Market Outlook, data indicates that “purchase applications for higher price homes rebounded more in the first three months of 2024 than lower-priced homes from the same time period last year.”

In the same report, Freddie Mac’s data shows that from January to April 2024 compared to the same time frame in 2023, applications to purchase homes over $1 million surged by nearly 64%. Applications for homes $900K to $1M rose by 47.6%, while applications for homes in the $800K to $900K range increased by over 22%. 

“Despite rising mortgage rates, the fact that the national median sold price is nearing last year’s record suggests two interrelated things: prices are still up. And inventory is still low,” said Edry. “Sellers may still be able to command competitive prices for their properties, especially in desirable markets.”

In contrast, applications for homes priced between $300K to $400K (the average median home sale price currently) saw a modest increase of 3%. Homes priced between $200K to $300K showed an even smaller increase of 1.9%, while applications for homes priced under $200K actually decreased by 4.6%. 

Is it reasonable to conclude that the significant rise in home prices may be due to a higher proportion of luxury home sales compared to lower-priced (median-priced) houses? 

“I think the rest of the year will look a lot like the status quo. If inflation could drop below 3% over the summer and the Fed actually makes its first rate cut in September, it will have a positive effect on the autumn sales market as more buyers will enter the market,” said Safdie. “Sellers should still price aggressively, not aspirationally, for the rest of 2024, and the most valuable homes will be elevated to true market value through competing bids.”

“Right now, we’re adjusting our expectations on a nearly daily basis. This seems to be trending back to more of a ‘I HAVE TO MOVE’ market than an ‘I want to move.’ But there will still be opportunities for purchasers that buy on the dips,” said Edry. “I still think that, barring any new black swan event, the worst is behind the real estate market. I doubt there will be any precipitous drop, but we might not see the turnaround that many had hoped or expected in 2024. That might have to wait til next year.”