Home sales fell for the third straight month in April as rising mortgage rates and affordability issues pushed many potential buyers out of the market. Still, prices continued to climb, reaching an all-time high.
The median home price in April was a record $391,200, up 14.8% from a year ago, according to a report from the National Association of Realtors. Although price growth was robust, it was slower than in recent months and determined buyers stretched their budgets to buy a home before mortgage rates climbed further.
The price increase marks more than a decade of consecutive year-on-year increases, the longest running streak on record.
But as the average rate for a 30-year mortgage topped 5% in April, the rising cost of financing a home pushed some potential buyers out of the market.
Sales of existing homes, which include single-family homes, townhouses, condominiums and co-ops, fell 2.4% from the previous month and 5.9% from a year ago. This is the weakest business activity since June 2020.
“Rising house prices and sharply rising mortgage rates have reduced buyer activity,” said Lawrence Yun, chief economist at NAR. “It looks like more declines are imminent in the coming months, and we will likely return to pre-pandemic home sales activity after the remarkable uptick of the past two years.”
While listings of homes available for sale declined in April, according to NAR’s tracking of vaults, demand among buyers remains strong, Yun said. In April, a typical home sold in 17 very quick days and 88% of homes sold in a month or less.
“The number of households interested in becoming homeowners remains high, despite the drop in confidence that now is a good time to buy,” said Danielle Hale, chief economist at Realtor.com. “This is especially true among younger homebuyers, who are likely first-time buyers and struggling to save for a down payment as rents continue to hit record highs.”
Affordability remains a challenge for first-time home buyers, who made up just 28% of the market in April. A year ago, they represented 31% of the market.
But not only are record prices and rising mortgage rates putting pressure on homebuyers, the persistently low supply of homes available for purchase is still weighing on sales.
The stock of homes for sale rose 10% in April from March, but was down 10.4% from a year ago, according to NAR.
“The housing supply has started to improve, albeit at an extremely slow pace,” Yun said.
He noted that the current housing market is in a rare state. While rising house prices and low days on market suggest a strong housing market, he said, falling sales are a sign of weakness.
“Maybe we’re moving from an intense market where many homes are getting multiple offers to a less intense market,” he said. “Transactions always happen and happen quickly, if inventory is available.”
Unfortunately, he said, there is a huge wave of potential inventory that is not being unlocked.
Some homeowners who may have considered selling their home may decide to stay put partly because they have refinanced at a very low interest rate in the past two years. “They don’t want to give up with extremely low mortgage rates,” Yun said.
While higher rates should eventually dampen price increases, homeowners still hold most of the cards.
“Sellers will want to stay on top of a market that is rapidly adapting and ready for a reset,” Hale said.