Recent data from the National Association of Realtors revealed a significant 7.7% drop in signed sales contracts on existing homes in April, compared to the previous month. This decline marks the slowest pace since April 2020 and suggests a challenging market environment for buyers and sellers alike. Pending sales, which serve as a leading indicator of future closed sales, were also down by 7.4% compared to April of the previous year.
The primary reason behind the decline in home sales can be attributed to the sharp increase in mortgage rates during the same period. 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. This significant jump in rates had a profound impact on buyer sentiment, as evidenced by the slowdown in sales activity across all regions of the country.
While home sales were down across the board, the Midwest and West regions experienced the most significant declines. The Midwest, known for its affordability, and the West, home to some of the nation’s most expensive markets, both witnessed a sharp drop in sales. Despite the challenging market conditions, chief economist Lawrence Yun remains optimistic about the housing market’s resilience.
In response to the sluggish sales pace, a growing number of sellers have started to reduce their asking prices in an effort to attract buyers. The share of sellers cutting prices reached 6.4% in May, the highest level since 2022. Additionally, the median asking price for homes decreased for the first time in six months, signaling a shift towards a more buyer-friendly market environment.
Looking ahead, the housing market is expected to become more active in the coming months, as active inventory in April was 30% higher than the same period last year. However, the key to revitalizing the market lies in lower mortgage rates, which are crucial in incentivizing both buyers and sellers to participate in real estate transactions. Senior economic research analyst Hannah Jones emphasizes the importance of favorable mortgage rates in driving market activity and restoring balance between supply and demand.
The recent slowdown in home sales can be largely attributed to the rapid increase in mortgage rates, which dampened buyer demand and resulted in a more challenging market environment. While there are signs of improvement on the horizon, such as increased inventory and declining prices, the housing market’s recovery will ultimately depend on the trajectory of mortgage rates in the months to come.