The real estate market experienced a setback in April, with sales of previously owned homes falling short of expectations. The National Association of Realtors reported a 1.9% drop in sales to 4.14 million units on a seasonally adjusted annualized basis. This decline came as a surprise to many, as the forecast had anticipated a slight gain in sales. Moreover, sales were also down from the same period last year, compounding the disappointment in the market performance.
One of the key factors contributing to the decline in home sales was the sharp increase in mortgage rates. Rates jumped at the start of February and remained around 7% for the next two months before climbing even higher in April. This significant increase, which amounts to 300 basis points from the pre-Covid pace, has raised concerns about how the lock-in effect will restrain home sales in the near future. The higher mortgage rates have undoubtedly made it more challenging for potential buyers to afford homes, leading to a slowdown in the housing market.
Total housing inventory at the end of April stood at 1.21 million units, marking a 9% month-over-month increase and a 16% rise from the previous year. Despite the uptick in supply, the inventory level represents just a 3.5-month supply at the current sales pace, well below the six-month threshold considered balanced between buyers and sellers. The limited supply of homes, particularly in the lower price range, has put upward pressure on prices. In April, the median price of an existing home reached $407,600, reflecting a 5.7% year-over-year increase and setting a new record high for the month.
The disparity in home sales performance was evident across different regions of the country. In the Northeast, sales fell 4% from March and 4% from the same period last year, with a corresponding increase in median prices to $458,500. The Midwest saw a 1% decline in sales both month-to-month and year-over-year, accompanied by a rise in median prices to $303,600. Sales in the South dropped 1.6% from March and 3.1% from the previous year, with a median price increase to $366,200. In the West, sales were down 2.6% for the month but up 1.3% from one year before, with the median price soaring to $629,600. These regional variations reflect the complex interplay of local market conditions, highlighting the challenges faced by both buyers and sellers in different parts of the country.
Despite the sluggish performance in April, there are signs of cautious optimism for the housing market. First-time buyers made a slight comeback, accounting for 33% of April sales compared to 29% the previous year. Additionally, the all-cash share of transactions remained relatively high at 28%. While the market continues to face challenges, including rising mortgage rates and limited inventory, there is hope that the pace of price increases will eventually taper off as more housing inventory becomes available. This gradual normalization could signal a more balanced market in the coming months, offering opportunities for both buyers and sellers to engage in a more stable and sustainable housing market.