The median price of an existing home sold in May set a record high, but it's not the price itself that is so stunning.
It's the math behind that price that indicates how difficult it has become for the average American to become a homeowner. It also explains why the national homeownership rate remains stuck near its historic low.
The National Association of Realtors reported the median price of an existing home is $252,800, a 5.8 percent increase from the price reported in May 2016. The key here is that the calculation is done using a median figure. That means half the homes sold in May were priced higher, and half were priced lower. Other measures of home prices use so-called repeat sales figures, meaning they are looking at the year-to-year gains that the same or similar houses would see.
Using a median gives us a better look at not just the price, but what price points are selling — and that is key. If more expensive homes are selling, that skews the median higher, and that is now the case.
Sales of existing homes priced below $100,000 dropped 7 percent year over year, and sales of homes priced between $100,000 and $250,000 rose just 2 percent, according to the NAR. On the other side, sales of homes priced over $500,000 jumped more than 20 percent and sales of million-dollar homes surged nearly 30 percent.
The issue is both a wealth gap and a supply crunch.
"There is a housing shortage everywhere and a housing crisis in some markets," said Lawrence Yun, chief economist for the NAR.
There are very few low-priced homes for sale, and far more expensive homes for sale. Homebuilders may claim they are increasingly targeting that first-time buyer, but their price points even for entry-level homes are still mostly above $200,000. Investors, who often have the advantage of all-cash offers, bought and continue to buy lower-priced and distressed homes, taking advantage of high demand for single-family rentals. It is difficult for first-time, mortgage-dependent buyers to compete.
"Because of the run-up in home prices, it's making it more difficult for renters to convert into home ownership," said Yun. "We are essentially stuck at a 50-year low in the homeownership rate."
This is occurring at a time when overall housing equity has doubled, roughly, from $6 trillion to over $13 trillion in the past five years.
"Yet the renters are not participating in this wealth, so there is a greater divide between owners and nonowners," said Yun.
There is most definitely high demand for homes, as younger Americans age into the traditional ownership years. There was even a slight uptick in the number of owned household formed in the first part of this year, compared to rental households formed, according to the U.S. Census. Still, there would be far more sales if homes were more affordable.
"It's no exaggeration to say that current buying conditions in many markets are terrible, with sellers in complete control and buyers forced to contend with cutthroat competition and intense pressure to make a deal," said Svenja Gudell, chief economist at Zillow.