US home sales record second consecutive monthly decline; Home prices are jumping

Written by Lucia Mutikani

WASHINGTON (Reuters) – Existing home sales in the United States unexpectedly fell in April as higher mortgage interest rates and home prices pressured demand, causing another setback for the housing market.

Although a report released by the National Association of Realtors on Wednesday showed inventory increasing to the highest level in 2 1/2 years last month, starter homes remained scarce, marking the second straight monthly decline in sales.

The housing market took a step back after residential investment grew at its fastest pace in more than three years in the first quarter amid a rebound in mortgage rates.

“Higher mortgage rates and rising prices are forcing potential homebuyers to wait until purchasing conditions improve,” said Ben Ayers, chief economist at Nationwide.

Home sales fell 1.9% last month to a seasonally adjusted annual rate of 4.14 million units. Economists polled by Reuters had expected home sales to rise to an average of 4.21 million units. Sales declined in all four regions.

The average interest rate on the popular 30-year mortgage is facing difficulties falling below 7% after rising to its highest level in more than five months at 7.22% in early May, data from mortgage financing agency Freddie Mac showed.

Government data last week showed a decline in the number of home starts and building permits in April. Homebuilder confidence deteriorated significantly in May.

Economists do not expect a significant decline in mortgage rates until the Federal Reserve begins lowering interest rates. The US central bank has raised the benchmark overnight interest rate by 525 basis points since March 2022 to curb demand in the economy and control inflation. The Fed has kept interest rates unchanged in the current 5.25%-5.50% range since July.

Financial markets expect the central bank to begin a monetary easing cycle in September.

Home sales, which represent a large portion of U.S. housing sales, fell 1.9% year over year in April.

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Housing inventory increased 9% to 1.21 million units last month, the highest level since October 2021. Supply jumped 16.3% from a year ago. However, supply is still below the 1.8 million units announced in April 2019, months before the COVID-19 pandemic hit.

Properties typically stay on the market for 26 days in April, up from 22 days last year. About two-thirds of the homes were under contract within a month of being listed, which is consistent with the continued limited housing supply.

The rise in inventory was concentrated in homes priced at $1 million or more, where supply was up 34% from a year ago. Sales in this price category increased by 39.7% compared to last year. In contrast, homes priced at $100,000 or less saw a 7.1% decline in sales. Sales in the $100,000 to $250,000 price range rose 0.1%.

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“It's a very frustrating market,” said Lawrence Yun, chief economist at NAR. “Mortgage rates are high. The lack of inventory, to some extent, appears to be holding back sales.”

At the pace of sales in April, it will take 3.5 months to exhaust the current inventory of existing homes, up from 3.0 months last year. A four to seven month supply is seen as a healthy balance between supply and demand.

The median existing home price rose 5.7% from a year earlier to $407,600, the highest price for any month in April. Home prices rose in all four regions. At least 27% of homes sold last month were above list price, indicating the prevalence of multiple offers in some areas.

First-time buyers account for a third of sales, the highest share since January 2021 and up from 29% a year ago. This share remains below the 40% that economists and realtors say is necessary for a strong housing market.

All-cash sales accounted for 28% of transactions in April, unchanged from a year ago. Distressed sales, mostly foreclosures, account for just 2% of transactions. This share has risen steadily from 1%, which was the prevailing figure over the past year.

(Reporting by Lucia Mutikani; Editing by Paul Simao)