Home sales have plunged to one of their lowest levels on record

Home sales have cratered to one of their lowest levels on record, new data shows.

According to a recent report from Redfin, a total of 407,959 homes changed hands in May. Only two months this decade have seen a lower number: May 2020 during Covid, and October 2023, when mortgage rates surged to a 23-year high.

Redfin economists say the slowdown is the result of record home prices and high mortgage rates—a double whammy that has bulked up housing costs.

"Sales are sluggish because high home buying costs are making both house hunters and prospective sellers skittish," Redfin senior economist Elijah de la Campa explained.

"And with so few homes for sale, buyers in some markets are getting into bidding wars, which is helping push home prices to record highs."

The median home now costs a record-breaking $439,716 after a 5.1% year-on-year rise, according to Redfin data.

With the average 30-year fixed mortgage rate at 7.06% and the Fed once again opting to hold its base rate steady, the cost of homeownership remains a luxury few can afford.

Breaking down the figures

Despite the slowdown, the typical home flies off the market within 32 days—and 35% of them end up selling for more than the initial asking price, according to Redfin.

Redfin argues that there is "one silver living" for buyers: 19.2% of homes have a price cut after being listed, which isn't far from the record high of 21.7% seen in 2022.

This typically happens when sellers ask for too much, meaning their property ends up sitting on the market for too long.

But interestingly, some areas are more prone to price cuts than others. Florida and Texas were singled out in particular, with the housing supply in both states now rising quickly.

For example, active listings along Florida's Gulf Coast have risen substantially over the past 12 months "amid a new construction boom, intensifying natural disasters and soaring insurance costs."

Analysis of 85 metro areas with a population of at least 750,000 people also uncovered some stark contrasts across the country.

Median sale prices rose by 17.6% year on year in Anaheim, California—the highest nationwide. Cape Coral in Florida saw the sharpest drop, with a 2.7% fall.

Six of the 10 metro areas that saw the biggest price cuts were in Florida and Texas. But Indianapolis had the biggest share, with 48.1% of properties witnessing a drop.

Meanwhile, 77.1% of homes in Rochester, New York ended up selling above their listing price—with markets in San Jose and Oakland in California also performing strongly at 76.1% and 68.4%, respectively.

An eventual Fed rate cut would help mortgage rates cool, but Redfin has warned that this could push house prices up even further as demand returns.

"Lower rates and higher prices may ultimately cancel each other out when it comes to homebuyers’ monthly payments," Redfin economic research lead Chen Zhao warned.