Due to the increase in mortgage rates and housing prices, the unexpected drop in existing home sales in the United States in April has once again dampened the real estate market.
The National Association of Realtors (NAR) in the United States released a report on Wednesday, May 22, stating that existing home sales in April decreased by 1.9%, with a seasonally adjusted annual rate of 4.14 million units, which is lower than the revised 4.22 million units in March. Sales declined across the country – the Northeast by 4%, the West by 2.6%, the South by 1.6%, and the Midwest by 1%.
The median price of existing homes rose by 5.7% to $407,600, marking the tenth consecutive month of increase and setting a new record high for April.
NAR’s chief economist Lawrence Yun said last month’s sales decline was “a bit discouraging.” Economists had previously projected sales for April to reach 4.2 million units.
The benchmark 30-year fixed-rate mortgage interest rate has increased for five out of the past six weeks, currently standing at 7.02%, higher than the 6.39% a year ago. The high home prices have also deterred potential buyers, partly due to tight inventory of homes for sale.
Housing inventory increased by 9% from March to 1.2 million units, marking the fourth consecutive month of growth, but still significantly lower compared to pre-pandemic levels of 1.7 million units. Some homeowners are hesitant to list their properties for sale because they obtained their homes at low mortgage rates in the past and are reluctant to give up these rates for higher rates on a new purchase.
If the Federal Reserve cuts interest rates later this year, it could provide some relief to the housing market.
Robert Frick, an economist at Navy Federal Credit Union, stated, “Typically, we would see a surge in home sales around this time of year, but mortgage rates continue to restrain listings and purchases. Unfortunately, home prices keep rising, further pushing away the opportunity for low to even middle-income Americans to buy homes. The only way to truly alleviate this situation is for the Federal Reserve to lower interest rates later this year, which would eventually seep into mortgage rates.”
However, sales in the high-end housing market have been more active. Sales of homes priced at $1 million or more have surged by 40% compared to a year ago, partly due to a 34% increase in inventory for these properties.
One-third of the sales are going to first-time homebuyers, the highest percentage since January 2021, but still lower than the historical average of 40% they typically represent.