In April, signed sales contracts on existing homes experienced a significant drop of 7.7% compared to March, marking the slowest pace since April 2020. This decline, reported by the National Association of Realtors, came as a surprise to many industry experts who anticipated flat sales compared to the previous month. The decrease in pending sales, which serve as a forward-looking indicator of closed sales one to two months later, was also significant compared to April of the previous year, with a 7.4% drop.
One of the primary factors contributing to the slump in home sales was the rapid increase in mortgage rates during the month of April. The average rate on a 30-year fixed mortgage surged from around 6.9% at the end of March to 7.5% by the end of April, as reported by Mortgage News Daily. This sharp rise in interest rates had a profound effect on buyer behavior as they reacted in real-time to the changing mortgage landscape. With home prices on the rise and supply remaining low, the spike in rates intensified competition among buyers, leading to a dampening effect on home buying activity.
While home sales were down across all regions in the country, the Midwest and West experienced the most significant declines. The Midwest is known for having some of the most affordable housing markets, while the West boasts some of the most expensive. Despite the slowdown in sales, Lawrence Yun, chief economist for the NAR, remains optimistic about the market's future outlook. He anticipates that the Federal Reserve's expected rate cuts later in the year will improve affordability and boost supply, thereby creating a more favorable environment for both buyers and sellers.
Response to Slow Sales Pace
In response to the sluggish sales pace observed in April, there was an uptick in the share of sellers cutting prices in May. According to a report from Redfin, 6.4% of sellers reduced their asking prices, marking the highest level since 2022. Additionally, the median asking price dropped for the first time in six months. Despite these adjustments, active inventory in April was 30% higher than the same period in 2023, signaling a potentially more active summer market ahead. Hannah Jones, senior economic research analyst with Realtor.com, emphasized the critical role that lower mortgage rates will play in stimulating market activity and attracting both buyers and sellers back into the fold.
The housing market faced several challenges in April, particularly in response to the sharp increase in mortgage rates. While sales experienced a notable decline across all regions, there remains optimism for future improvements in affordability and supply conditions as interest rates are expected to decrease in the coming months. The evolving dynamics of the real estate market will continue to shape buyer and seller behaviors, ultimately influencing the trajectory of home sales in the months to come.