The National Association of Realtors reported a significant drop in signed sales contracts on existing homes in April, signaling the slowest pace since April 2020. This decline in pending sales can be attributed to the surge in mortgage rates, impacting buyer behavior in real time.
Sales were down across all regions of the country, with the Midwest and West experiencing the most significant decreases. The Midwest, known for its affordable markets, and the West, characterized by expensive markets, were particularly affected by the rising interest rates.
Market Dynamics
The increase in mortgage rates, reaching 7.5% by the end of April, coupled with soaring home prices and limited supply, intensified competition among buyers. This resulted in a dampening effect on home sales, despite an increase in inventory.
In response to the sluggish sales pace, sellers began to reduce prices, with the share of price cuts hitting 6.4% in May, the highest level since 2022. Additionally, the median asking price experienced a decline for the first time in six months, indicating a shifting market landscape.
While active inventory in April was higher than the previous year, suggesting a potentially more active summer market, the key to revitalizing the real estate sector lies in lower mortgage rates. As interest rates are anticipated to decrease with the Federal Reserve’s intervention, improved affordability and increased supply are expected to restore market equilibrium.
The impact of rising interest rates on home sales underscores the interconnected nature of the housing market. As buyers and sellers navigate fluctuating mortgage rates and market conditions, the need for strategic adjustments and a cautious approach becomes paramount in achieving sustainable growth in the real estate sector.