The National Association of Realtors reported a significant drop of 7.7% in signed sales contracts on existing homes in April compared to March. This decline marks the slowest pace since April 2020, highlighting a concerning trend in the housing market.
The surge in mortgage rates, with the average rate on the 30-year fixed mortgage reaching 7.5% by the end of April, played a crucial role in dampening home buying activity. The rapid increase in rates, coupled with soaring home prices and limited supply, created a challenging environment for prospective buyers.
Sales were down across all regions of the country, with the Midwest and West experiencing the most significant declines. The Midwest, known for its affordability, and the West, recognized for its high-priced markets, both saw a notable decrease in home sales activity.
In response to the sluggish sales pace, the share of sellers cutting prices rose to 6.4% in May, the highest level since 2022. Additionally, the median asking price saw a decline for the first time in six months. However, active inventory in April was 30% higher than in April 2023, indicating a potentially more active summer market.
Chief economist for the NAR, Lawrence Yun, remains optimistic about the market outlook. He anticipates that the Federal Reserve’s expected rate cut later this year will improve affordability and boost supply, leading to better conditions for buyers. Lower mortgage rates are seen as a critical factor in revitalizing both buyer and seller participation in the housing market.
The impact of escalating interest rates on home sales cannot be understated. The combination of rising mortgage rates, increasing home prices, and limited inventory has created a challenging environment for buyers. However, market experts are hopeful that upcoming interventions and market shifts will lead to improved conditions in the housing market.