Home prices reach a new record for the second straight month in May, but sales drop

Higher mortgage rates caused many home shoppers to hold off on buying in May, with the largest annual drop in sales in seven months.

But home prices reached a record for the second consecutive month at $908,000 in May, a $73,000 increase compared to a year ago, according to the California Association of Realtors. (For comparison, the average household income in California was $85,300 in 2023.)

Fast-climbing mortgage rates and a limited supply of available homes affected both prices and sales in May, the opening to the summer home-buying season. But with higher home prices and mortgage rates, affordability and hard-to-make monthly payments could throw more cold water on a lukewarm market.



BLAME HIGHER RATES AND PRICES

Home sales reached a seasonally adjusted annual rate of 272,410 in May, down 1.1% from April – and off 6% compared to a year ago. It’s also the 20th straight month below the 300,000-sales threshold, often considered the level of a healthy market for buyers and sellers.

The Far North, from about Chico to Crescent City, and the Inland Empire had the largest annual drop in sales at 8.4% and 5.9%, respectively. The other five regions had either modest declines or small gains, with the Bay Area and the Central Coast enjoying a bump in sales.

“California home sales stalled in May as mortgage rates reached the highest level in five months and may have contributed to the slowdown in market activity,” says CAR president Melanie Barker. “However, a moderation in interest rates in the past couple of weeks and recent improvements in housing inventory could create an opportunity for motivated buyers to reenter the market before the homebuying season peaks.”

A tick or two decline in mortgage rates will likely do little, if anything, to help jump-start a sputtering housing market. Fewer than one of every five households can afford to buy a median-priced home in California, especially when mortgage rates have doubled the monthly payment during the past two years.

Lower rates could also affect buyers in another way, creating more competition for the few homes on the market.

“If lower mortgage rates bring back more demand than supply, that could erase the possibility that home-price growth softens, and push prices up even further,” says Chen Zhan, economic research lead for Redfin. “Lower rates and higher prices may ultimately cancel each other out when it comes to homebuyers’ monthly payments.”



ANOTHER MONTH, ANOTHER NEW PRICE RECORD

Higher home prices also don’t help. The state’s median home price – meaning half the homes sold for more, the other half for less – increased to $908,040, a 0.4% bump from April and up 8.7% from a year ago. The state’s median home price has jumped 54% since May 2020.

The Bay Area had the largest annual increase at almost 12% in May, followed by Southern California at 10% and Los Angeles at 9.8%. 

The Bay Area, as always, boasts the highest median price at $1.46 million, with five of the nine counties climbing above $1 million – and San Mateo and Santa Clara topping $2 million. 

MILLION-DOLLAR HOME MADNESS

Statewide, almost two of every five homes (36.6%) sold for more than $1 million in May, a 15.5% increase compared to a year ago. Homes selling for less than $500,000 plummeted 12% from a year ago.

“A persistent shortage of homes for sale, particularly in the more affordable market segments, continued to push up California’s median home price to new record highs over the past couple of months,” says Jordan Levine, CAR senior vice president and chief economist. “With mortgage rates coming back down from their recent peaks and market competition heating up, the statewide median price may have more room to grow before the summer ends.”

Good news for home sellers, but a punch in the gut for home shoppers.

Home prices and sales in May compared to a year ago

RegionMedian home price% gain or loss vs. a year agoHome sales vs. a year ago
California$908,840+8.7%-6.0%
Bay Area$1.46 million+11.9%+4.3%
Central Coast$1.06 million+5.9%+0.6%
Central Valley$507,080+4.6%+0.0%
Far North$400,000+5.3%-8.4%
Inland Empire$598,490+4.1%-5.9%
Los Angeles$840,000+9.8%-1.1%
Southern California$880,000+10.0%-1.0%

Source: California Association of Realtors