Existing-home sales fell in every region but the Midwest for a second straight month. Why is the Midwest resilient to the spring slump?
For the second consecutive month, the Midwest was the only region to stave off decreasing existing-home sales nationwide.
According to the National Association of Realtors® (NAR), nationwide existing-home sales fell by 0.9% from April to May, extending the streak to four straight months of decline. Existing-home sales tracks completed transactions for single-family homes, townhomes, condominiums, and co-ops.
While the South (-0.4%), West (-4.1%), and Northeast (-1.4%) all saw decreased sales from April to May, the Midwest boasted an increase of 1.6%.
What makes the Midwest so different?
When looking at the numbers, the Midwest’s resilience is not exactly a mystery. The Midwest had the lowest median home price and the second-lowest median price increase from May 2020.
|Median home price May 2021
|Increase from May 2020
Keep in mind, May 2020 statistics and data collection were impacted by COVID-19.
Regardless, May 2021 marks 111 consecutive months of year-over-year increases in median existing-home prices. It seems buyers in the Northeast, West, and South have hit some sort of breaking point that would explain the slowdown in those regions. Perhaps it’s no longer worth it -- or possible -- for borrowers to navigate such high prices, low inventory, and steep competition just to lock in historically low interest rates.
It’s also possible that we’re seeing an increasingly mobile workforce migrate from costly coastal areas to a more affordable Midwest, where in May, 40% of homes purchased were in the $100-$250,000 range -- well below the region’s median home price of $268,500.
Another point of strength for the Midwest housing market is that inventory is holding relatively steady, compared to other regions. According to the NAR housing shortage tracker, only a few Midwest metro areas, including Wichita, Kans. and Lafayette, Ind., show housing shortages or a need for more building permits. A majority of Midwestern metropolitan areas, such as Minneapolis, St. Louis, Milwaukee, and Des Moines, maintain a sufficient supply of homes.
That’s not the case elsewhere, especially in major metro areas in the West and Northeast. Coastal areas in California and New York show high housing shortages, and Boulder, Colo., is seeing a crunch as well.
The Midwest moving forward
There is not a lot of research to explain why home sales are only increasing in the Midwest. It’s too soon to tell whether it’s due to migration or whether local buyers are staying active in the Midwest and pulling back elsewhere. But the impact of millennials -- the largest generation in the country -- coming of age as homebuyers should not be ignored.
Many of these first-time homebuyers are being squeezed out by high prices and intense competition in the West, Northeast, and South. But this massive consumer base seems to be finding a foothold in the Midwest.
It’s only been two months, but the Midwest’s resiliency to falling home sales will be interesting to track moving forward. One scenario is that the Midwest could join the rest of the country in decreasing home sales in the coming months. That would partially debunk the migration theory and be a signal that buyers are simply waiting for the market to reverse.
On the other hand, housing inventory increased 7% from April to May, and NAR chief economist Lawrence Yun said, "Supply is expected to improve, which will give buyers more options and help tamp down record-high asking prices for existing homes."
So another possible scenario is that supply will increase enough to lower -- or at least flatten -- home prices, and existing-home sales will begin to increase again in the Northeast, South, and West.
For now, the four-month streak of decreasing home sales suggests that consumers aren’t as motivated by exceptionally low interest rates as they were in 2020 and earlier this year. And if inventory doesn’t recover and prices don’t fall, we could well see that streak continue.
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