The National Association of Realtors reported a significant drop of 7.7% in signed sales contracts on existing homes in April compared to March. This decline marks the slowest pace since April 2020, indicating a noticeable shift in the housing market. Pending sales, which are considered a forward-looking indicator of closed sales one to two months later, were also down by 7.4% compared to April of the previous year.
The sudden surge in mortgage rates played a crucial role in dampening home buying activity in April. The average rate on a 30-year fixed mortgage jumped 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, coupled with soaring home prices and limited supply, intensified competition among buyers, further impacting sales.
While sales declined across all regions in the country, the Midwest and West experienced the most significant decreases. The Midwest, known for its affordable markets, and the West, home to some of the most expensive markets, both struggled in the face of rising mortgage rates. Despite these challenges, Lawrence Yun, chief economist for the NAR, remains optimistic about the housing market’s future, predicting better conditions with the Federal Reserve’s anticipated rate cut later in the year.
In response to the slowdown in sales, the share of sellers cutting prices surged to 6.4% in May, the highest level since 2022. Additionally, the median asking price decreased for the first time in six months, indicating a potential shift in market dynamics. Active inventory in April was also up by 30% compared to the previous year, suggesting a more active summer market ahead. However, lower mortgage rates are deemed crucial in stimulating both buyer and seller activity in the market.
Overall, the real estate market faced challenges in April due to the impact of escalating mortgage rates. While the outlook remains uncertain, industry experts anticipate improvements in affordability and supply with potential rate cuts in the future. As the market continues to evolve, it will be essential for both buyers and sellers to adapt to changing conditions to navigate the complexities of the current housing landscape.
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