Sales of previously occupied U.S. homes slowed for the third consecutive month in April as mortgage rates surged, driving up borrowing costs for would-be buyers as home prices soared to new highs.
Existing home sales fell 2.4 per cent last month from March to a seasonally adjusted annual rate of 5.61 million, the National Association of Realtors said Thursday.
That was slightly higher than what economists were expecting, according to FactSet. Sales fell 5.9 per cent from April last year. After climbing to a 6.49 million annual rate in January, sales have fallen to the slowest pace since June, 2020, when they were running at an annualized rate of 4.77 million homes.
The median home price in April jumped 14.8 per cent from a year ago at this time to US$391,200. That’s an all-time high according to data going back to 1999, NAR said.
“Without a doubt, rising mortgage rates, rising prices are hurting affordability, but we should not discount that we’re still lacking inventory,” said Lawrence Yun, NAR’s chief economist.
Fierce competition for limited properties on the market and ultralow mortgage rates superheated the housing market the past couple of years, but now its cooling as homebuyers face sharply higher home financing costs than a year ago after a rapid rise in mortgage rates.
In April, the weekly average rate on a 30-year fixed-rate home loan climbed above 5 per cent for the first time in more than a decade, crimping would-be homeowners’ purchasing power at the outset of the spring home-buying season, traditionally the busiest period for home sales.
Mortgage rates are climbing after a sharp move up in 10-year Treasury yields, reflecting expectations of higher interest rates overall as the Federal Reserve hikes short-term rates in order to combat the worst inflation in 40 years.
With inflation at a four-decade high, rising mortgage rates, elevated home prices and tight supply of homes for sale, homeownership has become less attainable, especially for first-time buyers.
Higher rates can limit the pool of buyers and cool the rate of home-price growth – good news for buyers. But higher rates can also limit affordability.
For now, the housing market continues to favour sellers as buyers vie for a still tight inventory of homes for sale, which keeps pushing up home prices. Even as sales slowed last month, it was common for homes on the market to receive multiple offers.
Inventory levels have to go higher before multiple offers dissipate from the market, Mr. Yun said. Until then, prices are likely to move higher.
“We anticipate, again, a continuing decline in home sales, but not necessarily home prices,” he said.
On average, homes sold in just 17 days of hitting the market last month, unchanged from March or April last year. In a market that’s more evenly balanced between buyers and sellers, homes typically remain on the market 45 days.
As is typical in the spring, the number of homes on the market increased in April from the previous month. Some 1.03 million properties were available for sale by the end of April, up 10.8 per cent from March, but down 10.4 per cent from April last year.
At the current sales pace, the level of for-sale properties amounts to a 2.2-month supply, the NAR said. That’s up from 1.9 months in March, and down from 2.3 months a year ago.
Real estate investors and other buyers able to buy a home with just cash, sidestepping the need to rely on financing, accounted for 26 per cent of all sales last month, down from 28 per cent in March, NAR said.
Homes purchased by investors made up 17 per cent of sales in April, down from 18 per cent the previous month, while first-time buyers accounted for 28 per cent of transactions, down from 30 per cent in March and 31 per cent a year ago.
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