New data suggest rich buyers are fueling a rise in home sales, while lower-income Americans are finding it harder to get on the property ladder – a sign the “K-shaped” economy is growing even more pronounced thanks to the current bout of high inflation fueled by the war with Iran.
Sales of existing homes accelerated to their fastest pace of the year in May, led by sales of homes priced at over $1 million, according to research released by the National Association of Realtors on Tuesday. At the other end, the only categories where home sales declined last month were those priced below $250,000.
The data could be another sign that the wave of inflation caused by tariffs and the Iran war is beginning to ripple through the economy, influencing the decisions of households in unpredictable ways, economists said. The consumer-price index is expected to surpass a 4% annual rate in May when it’s released on Wednesday.
Overall, existing-home sales rose 3.2% in May to a seasonally adjusted annual rate of 4.17 million, the highest level since December. Sales were higher even with relatively elevated mortgage rates.
Below the surface, the data show that the K-shaped economy – a term describing the phenomenon of higher-income people spending more while lower-income people struggle – is hitting the housing market, said Lawrence Yun, chief economist at the National Association of Realtors.
The decline in sales at the lowest price points shows that renters are having increasing trouble saving for down payments, said Nancy Vanden Houten, lead U.S. economist at Oxford Economics. “Household budgets are now being further strained by higher gasoline prices and spillover from higher energy costs onto other goods,” she said.
At the high end of the income spectrum, there is a hint in the data that wealthy Americans are “unfreezing” their financial power to buy assets, said James McCann, senior economist at Edward Jones.
This suggests that inflation could be starting to spur high-end consumers to buy now because prices are going to continue to rise, McCann said. In eras of high inflation, cash loses its value, so consumers who can afford it tend have an incentive to spend rather than save.
