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Key Takeaways
- Home sales fell 1.9% in April from March, as the housing market stayed stuck in the doldrums despite prices hitting a new high for April.
- High mortgage rates have hurt both buyers and sellers, by making payments less affordable and by discouraging homeowners from putting their houses on the market.
- There was a silver lining to the cloudy outlook as for-sale inventory rose to its highest since October 2021.
The market for existing homes was stuck in neutral in April, with fewer sales and soaring prices as high mortgage rates continued to stifle homebuying.
If homes sold at the rate they did in April, 4.14 million would be sold all year, a 1.9% decline from the rate in March, the National Association of Realtors said Wednesday. Despite slow sales, prices continued climbing: the median-priced home sold for $407,600, the highest ever for any April, and a 5.7% increase from last year.
To put those numbers in perspective, the sales rate in April was 17% below the long-run average of 4.96 million, and 26% below the level in March 2022 when the Federal Reserve began its campaign of anti-inflation interest rate hikes, Jay Hawkins, an economist at BMO Capital Markets, said in a commentary.
Mortgage Rates Keep Many Locked In Their Home
Those figures highlight how increasing mortgage rates have put the brakes on home sales over the past two years. In early 2022, mortgage rates were still near the record lows they hit during the pandemic, which made homebuying more affordable and fueled frenzied demand for houses.
That began to change in March of that year when the Federal Reserve began raising its benchmark interest rate to combat inflation, pushing up mortgage rates. The average rate offered for a 30-year mortgage was 7.02% last week according to Freddie Mac, and has been hovering around 7% all year.
High mortgage rates have made monthly mortgage payments all but unaffordable for many buyers, stifling demand. It’s also discouraging would-be sellers from moving, which would mean giving up low mortgage rates they secured when borrowing was cheaper.
That “lock-in” effect has helped keep prices rising despite falling sales, an unusual combination historically.
However, More Homes Are Going on the Market
There was one bright spot for homebuyers in the report: the lock-in effect appeared to diminish somewhat, with the number of homes for sale rising to 1.21 million from 1.1 million in March, the fourth increase in as many months and the most since October 2021.
“We are beginning to see more choices for consumers out in the marketplace,” said Lawrence Yun, chief economist at the association, in a conference call with reporters.
The uptick in inventory could be due to a surge in homebuilding in recent years trickling down to the existing home market, and the lock-in effect diminishing somewhat as homeowners resign themselves to the new financial realities.
“Maybe people are accepting that we may be in this new normal high interest rate environment,” Yun said.
The number of homes for sale still paled in comparison to pre-pandemic times: there were 1.8 million for sale in April 2019, before the pandemic hit, for example.