Rosalind Evans
Pending home sales significantly dropped in April, reaching their lowest level since the onset of the pandemic. According to the National Association of Realtors (NAR), signed sales contracts on existing homes fell by 7.7% compared to March, marking the slowest pace since April 2020.
Sharp Decline in Pending Sales
Pending home sales are a forward-looking indicator, typically leading to closed sales one to two months later. In April, these sales were 7.4% lower than last year. Despite expectations for stable sales, the decline highlights a shift in buyer behavior influenced by rising mortgage rates.
Impact of Rising Mortgage Rates
Mortgage News Daily reported that the average rate on a 30-year fixed mortgage increased significantly, ending March at around 6.9% and soaring to 7.5% by the end of April. Lawrence Yun, chief economist for the NAR, noted, “The impact of escalating interest rates throughout April dampened home buying, even with more inventory in the market.” This rate increase rising home prices, and limited supply created a challenging environment for buyers.
Regional Sales Variations
Sales declined across all regions, with the Midwest and West experiencing the steepest drops. The Midwest, known for its affordability, and the West, home to some of the nation’s most expensive markets, faced significant challenges. Yun commented, “The prospect of measurable home price declines appears minimal. The few markets experiencing price declines will be viewed as second-chance opportunities for buyers to enter the market if those regions continue to add jobs.”
Sellers Adjust to Market Conditions
In response to the slowdown, a growing number of sellers reduced their prices in May, with the share hitting 6.4%, the highest since 2022, according to Redfin. The median asking price declined for the first time in six months. Realtor.com reported that active inventory in April was 30% higher than the previous year, suggesting a potentially more active summer market.
Rate Cuts and Market Recovery
Hannah Jones, senior economic research analyst with Realtor.com, emphasized the importance of mortgage rates in market recovery. “Though inventory and prices are moving in a more buyer-friendly direction, lower mortgage rates will be crucial in bringing buyers and sellers back into the market,” she said. Yun also mentioned that the Federal Reserve’s anticipated rate cut later this year could improve affordability and supply.
April’s slump in pending home sales underscores the significant impact of rising mortgage rates on the housing market. While the market faces challenges, pricing adjustments, inventory levels, and potential future rate cuts offer hope for a recovery in the coming months.
