First American's deputy chief economist says the improvement is real but modest, and affordability is still capping the recovery
Existing-home sales are expected to rise modestly in May for the second consecutive month, according to First American's Existing-Home Sales Outlook Report. The projected increase of 0.3% from April is encouraging heading into spring, but the broader picture remains well below pre-pandemic levels.
Odeta Kushi, deputy chief economist at First American, said the recent improvement needs to be weighed against where the market actually stands.
"The improvement in sales should also be kept in perspective: the housing market continues to operate below its pre-pandemic normal," Kushi said. "Nationally, April sales were nearly 18 percent below their April 2018-2019 average, while new listings were also 18 percent below normal. In other words, the market is not just short of buyers, it is also short of sellers."
Mortgage rates climbed from 6.05% in February to roughly 6.3% in April, reducing house-buying power by approximately $11,000. Affordability is still better than a year ago, but the momentum buyers carried into spring has slowed.
Where listings recover, sales tend to follow
Markets performing closest to pre-pandemic norms tend to be the ones where more sellers have come back. Provo, Utah, Nashville, Tennessee, and McAllen, Texas, have seen stronger new-listing recoveries, and their sales numbers reflect it. At the other end, Bridgeport and Hartford in Connecticut, Providence, Rhode Island, Rochester, New York, and Albuquerque, New Mexico, continue to see both listings and sales run well below pre-pandemic averages.
Many sellers in today's market become buyers in the same market, so a new listing can help unlock activity on both sides of a transaction. In markets where homeowners are locked in by low pandemic-era rates, the reluctance to list holds down buyer activity too.
"When fewer homeowners list their homes for sale, there are fewer opportunities for buyers to transact," Kushi said. "In a market where many homeowners are locked in by low pandemic-era mortgage rates, each new listing can help unlock both the supply and demand sides of a transaction."
Supply alone is not the whole answer
More listings matter, but only if buyers can reach the price. First American's data tracks the ratio of median list price to house-buying power, meaning how much home a median-income household can afford given current income and rates. Markets where listings have recovered but prices remain out of reach see a muted sales response.
San Jose makes the point plainly. New listings there have returned roughly to pre-pandemic levels, but sales have only recovered to around the national average. New listings in Los Angeles and San Diego are still well below normal, and so are sales. Stretched affordability leaves buyers with fewer options they can actually afford.
First American projects May sales to edge up 0.3% month over month, with a resilient economy as the only positive contributor at an estimated 0.4%. Rate pressure is doing the rest of the offsetting work.
"The spring market is improving, but the improvement is modest and below last year's level," Kushi said. "The healthiest markets are not just the ones with more listings. They are the ones where more buyers can still reach the price."
