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Something Strange is Happening With Home Prices

As mortgage rates hit fresh highs, there's something unusual going on with the real estate market.
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The latest news out of the housing market isn’t good. Mortgage rates are soaring, and sales are dropping. 

The one puzzler is what's happening with prices.

The 30-year fixed-mortgage rate averaged 5.81% as of June 23, hitting a near-14-year-high, according to Freddie Mac. The rate rose from 5.78% last week, when it registered its biggest one-week surge since 1987. The rate was just 3.02% a year ago.

“Fixed mortgage rates have increased by more than two full percentage points since the beginning of the year,” Sam Khater, Freddie Mac’s chief economist, said in a statement.

“However, in reality many potential homebuyers are still interested in purchasing a home, keeping the market competitive but leveling off the last two years of red-hot activity.”

Existing-home sales fell for the fourth straight month in May -- 3.4% from April and 8.6% from a year ago, according to the National Association of Realtors.

"Home sales have essentially returned to the levels seen in 2019 -- prior to the pandemic -- after two years of gangbuster performance," NAR Chief Economist Lawrence Yun said in a statement. 

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"Homes priced appropriately are selling quickly and inventory levels still need to rise substantially -- almost doubling -- to cool home price appreciation and provide more options for home buyers," Yun said.

Total housing inventory at the end of May rose 12.6% from April but slid 4.1% from a year ago.

Unsold inventory now totals a 2.6-month supply at the current sales pace, up from 2.2 months in April and 2.5 months in May 2021.

"Further sales declines should be expected in the upcoming months given housing affordability challenges from the sharp rise in mortgage rates this year," Yun said.

However, prices aren't behaving intuitively, yet.

The median existing-home price hit $407,600 in May, up 14.8% from May 2021. This marks 123 consecutive months of year-over-year increases, the longest streak in NAR records.

"Those of us who have been anticipating a deceleration in the growth rate of U.S. home prices will have to wait at least a month longer," Craig Lazzara, managing director at S&P DJI, said in a statement. “The strength of the [data] suggests very broad strength in the housing market, which we continue to observe.”

The S&P CoreLogic Case-Shiller home-price index posted a 20.6% annual gain in March, up from 20.0% in the previous month, according to the latest data.