The number of home sales contracts fell sharply last month as rising interest rates drove homebuyers out of the market.
The National Association of Realtors' (NAR) Index of Homes Under Contract fell about 8% in April from the previous month, and more than 7% annually. Homes under contract is a predictor of the future of the housing market, and homes that are under contract typically close in the next month or two.
The slump in transaction volume in April reflects a dip in interest rate-sensitive home buyers after interest rates rose more than a quarter of a percentage point to above 7 percent last month.
“Home buying slowed during April as interest rates rose, even as inventory increased on the market,” NAR chief economist Lawrence Yun said. “But the Federal Reserve's planned rate cuts later this year should improve homebuying and boost supply, which should help the situation.”
All four U.S. regions saw declines in accounts receivable on both a monthly and annual basis. The Midwest and West saw the largest declines of about 10% and 9%, respectively, followed by the South at 8% and the Northeast at 4%.
The three biggest threats to housing: mortgage rates, inventory and prices
The average mortgage rate rose sharply last month, hitting 7.17% after several consecutive weeks of increases in April.
“Unfortunately, the rise in mortgage rates comes at a time when the housing market is typically active, which could discourage potential homebuyers from making purchase decisions,” said Jiayu Xu, economist at Realtor.com.
High interest rates are also squeezing supply. The National Association of Realtors reports that unsold inventory totaled 1.21 million homes at the end of April, or 3.5 months' supply. In a balanced housing market, supply is about six months' worth. Supply has increased 16% over the past 12 months, but remains at historically low levels.
“Inventory is at an all-time low, and while it's increasing, it remains below 40% of pre-pandemic levels,” Jason Waugh, president of Coldwell Banker Affiliates, told Yahoo Finance.
Meanwhile, the percentage of homes selling for above asking price reached about 35% in April, according to Redfin, while home prices hit an all-time high in March.
The S&P CoreLogic Case Shiller index, which tracks home prices nationwide, rose 6.5% in March from a year ago. Several U.S. cities, including New York, Cleveland and Los Angeles, saw year-over-year price increases of nearly 9%. San Diego was up 11% from a year ago.
“On a seasonally adjusted basis, national home prices reached their ninth highest level over the past year, with all 20 metro markets posting four consecutive months of year-over-year gains, signaling broad-based and sustained growth in the housing sector,” said Brian Luke, head of commodities at S&P Dow Jones Indices.
The National Association of Realtors (NAR) reported that the national median home price rose to $385,300 in the first quarter of 2024. Prices are expected to rise for the rest of the year and into 2025.
Existing home sales fell 2% in April from the previous month due to a supply shortage, record home prices and exorbitant borrowing costs. Interest rates are expected to fall in the coming months, which could free up some inventory and give buyers more purchasing power, but Waugh said it's unlikely home prices will recover anytime soon.
“It's hard to imagine a scenario where supply and demand are in balance,” Waugh said. “As long as we navigate an environment where supply is low and demand is high, prices will rise.”
Rebecca Chen is a reporter for Yahoo Finance and previously worked as a certified public accountant (CPA) in investment tax.
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