May 2022 Home Sales Report Rising Prices and Mortgage Rates Drive Affordability Down Date: June 20, 2022
May 2022 at a glance
Very tight inventories kept sales down and put strong upward pressure on home prices. Wisconsin’s existing home sales fell 5.6% in May compared to sales 12 months earlier. The median home price rose 11.8% to $275,000 over that same period.
A similar picture emerged on a year-to-date basis, with existing home sales down 6.1% in the first five months of the year compared to that same period in 2021. The year-to-date median home price increased 10.8% to $254,900 compared to that same five-month period last year.
Home sales were down between May 2021 and May 2022 in five of the six regions of the state. The most pronounced reduction in sales was seen in the South Central, North and Central regions, down 10.1%, 9.9% and 7.9%, respectively. The sales reductions were more moderate in the Southeast region, which was down 4.3%, as well as the Northeast region, which was down 2.7%. Home sales were unchanged in the West region.
The inventory situation did not improve in May. Over the past 12 months, new listings dropped 6.5%, and total listings were down 15%
Given the tight supply and continued strong demand for housing, there were just 2.6 months of inventory in May, which is a 13.3% decline from a year earlier. This remains a very strong seller’s market, and homes are moving quickly. Average days on the market fell 13.7% in the last 12 months to just 63 days.
The annual inflation rate as measured by the percentage increase in the Consumer Price Index spiked to 8.6% in May, which is the largest annual increase since December 1981. The Federal Reserve has accelerated the pace at which it is increasing short-term interest rates in an attempt to mitigate these inflationary pressures.
Strong home price pressure and rising mortgage rates have taken a toll on affordability in the state. The 30-year fixed-rate mortgage rate rose from 2.96% in May 2021 to 5.23% in May 2022, an increase of 227 basis points. The Wisconsin Housing Affordability Index measures the percent of the median-priced home that a buyer with median family income qualifies to purchase. This assumes a 20% down payment and a 30-year fixed-rate mortgage financing the remaining balance. In May 2022, that buyer could purchase just 133% of the median-priced home, which is down from 190% a year earlier.
Analysis from the experts
Sellers remain in control for now
"This continues to be a very strong seller’s market, even with home prices and mortgage rates rising rapidly. There remains significant unmet housing demand from millennial buyers, which should fuel the state housing market through the prime summer sales market."
Brad Lois, 2022 Chairman of the Board of Directors, Wisconsin REALTORS® Association
Risk of recession increasing
"The Fed just stepped up the pace at which it is increasing short-term interest rates by raising the federal funds rate three quarters of a percent in June. The cumulative effect of increasing short-term interest rates is to slow the economy. Given that real GDP growth was already negative in the first quarter of this year, these Fed actions, which are necessary to control inflation, may push us into a recession if the economy slows too much."
Dave Clark, Marquette University Economist and WRA Consultant
Affordability will continue to fall
"We’re seeing significant annual increases in both home prices and mortgage rates, which is why affordability is falling so quickly. We expect these trends to continue throughout 2022. However, eventually demand pressure will moderate, and this will reduce the seller’s advantage in the market."
Michael Theo, President & CEO, Wisconsin REALTORS® Association