The National Association of Realtors reported a significant 7.7% drop in signed sales contracts on existing homes in April compared to March, marking the slowest pace since April 2020. These pending sales serve as a forward-looking indicator of closed sales one to two months later, highlighting the immediate impact of changing market conditions on homebuyers.
The average rate on the 30-year fixed mortgage surged from around 6.9% at the end of March to 7.5% by the end of April, according to Mortgage News Daily. This sharp increase in mortgage rates, coupled with the ongoing rise in home prices and limited supply, had a significant dampening effect on home sales during the month. Buyers reacted swiftly to the changing financial landscape, resulting in a decline across all regions of the country.
Notably, sales were hardest hit in the Midwest and West regions, which offer contrasting affordability profiles for buyers. Despite the challenges posed by rising mortgage rates and heightened competition, NAR Chief Economist Lawrence Yun remains cautiously optimistic about the housing market’s future. Yun anticipates some relief in the form of improved affordability and increased supply following potential rate cuts by the Federal Reserve later this year.
Market Dynamics and Buyer Behavior
In response to decreased sales activity, the percentage of sellers reducing prices in May reached 6.4%, the highest level since 2022, according to a recent report from Redfin. Additionally, the median asking price experienced a drop for the first time in six months. Active inventory in April was notably higher than the same period in 2023, signaling a potentially more active summer market ahead. Despite these positive shifts, the real estate market remains heavily dependent on lower mortgage rates to reinvigorate buyer and seller participation.
The housing market in April faced significant headwinds due to the rapid increase in mortgage rates, leading to a notable decline in signed sales contracts. While market conditions varied across regions and buyer behavior responded to changing dynamics, the overall outlook remains cautiously optimistic with potential relief on the horizon. As the market continues to evolve in response to external factors, maintaining a delicate balance between affordability, supply, and demand will be crucial in fostering a more robust and inclusive real estate landscape.