Due to rising mortgage rates, pending home sales decreased 7.7% in April compared with March and were down 7.4% compared with April 2023, according to the National Association of Realtors (NAR).
All four U.S. regions registered month-over-month and year-over-year decreases.
The decrease in contract signings came despIte an increase in housing supply.
“The impact of escalating interest rates throughout April dampened home buying, even with more inventory in the market,” says Lawrence Yun, chief economist for NAR, in a statement. “But the Federal Reserve’s anticipated rate cut later this year should lead to better conditions, with improved affordability and more supply.”
Regionally, and month-over-month, pending home sales fell 3.5% in the Northeast, 9.5% in the Midwest, 7.6% in the South, and 8.5% in the West.
”Home prices are hitting record highs, but the pace of gains should decelerate with more supply,” Yun says. “However, the prospect of measurable home price declines appears minimal. The few markets experiencing price declines will be viewed as second-chance opportunities for buyers to enter the market if those regions continue to add jobs.”
In a separate statement, Odeta Kushi, deputy chief economist for First American, says the drop in contract signings signals “weakening demand as mortgage rates surpassed 7 percent, dampening affordability and keeping home buyers out of the market. While inventory has picked up, you can’t buy what you can’t afford.”
“The decision to buy a home comes down to a payment-to-paycheck calculation, which is influenced by income, mortgage rates, and house prices,” Kushi says. “While house prices continue to reach new heights, more supply amid a pullback in demand means the pace of price appreciation has decelerated, and will likely continue to do so if this supply-demand dynamic persists.”
“Household income remains strong as the labor market continues to demonstrate resiliency, yet mortgage rates remain elevated in the Fed’s ‘higher-for-longer’ interest rate environment,” Kushi adds. “If the Fed cuts rates later this year, all else held equal, it should result in lower mortgage rates, boosting affordability and bringing buyers off the sidelines.”
Photo: Gabrielle Henderson