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WASHINGTON — U.S. existing home sales unexpectedly fell in April as higher mortgage rates and house prices weighed on demand, dealing another setback to the housing market.
Though the report from the National Association of Realtors on Wednesday showed inventory increasing last month to a 2½-year high entry-level homes remained scarce, accounting for the second straight monthly decline in sales.
The housing market has taken a step back after residential investment, which includes homebuilding, grew at its fastest pace in more than three years in the first quarter amid a resurgence in mortgage rates.
"Supply constraints are doing as much to hold back sales as demand-side weakness," said Oliver Allen, senior U.S. economist at Pantheon Macroeconomics. "Existing home sales will probably tread water, or perhaps even edge down a bit further, over the next few months."
Home sales slipped 1.9% last month to a seasonally adjusted annual rate of 4.14 million units. Economists polled by Reuters had forecast home resales would rise to a rate of 4.21 million units. Home resales are counted at the closing of a contract.
April sales likely reflect contracts signed in the prior two months when the average rate on the popular 30-year fixed-rate mortgage was hovering just below 7%.
Sales fell in all four regions. The average rate on the 30-year fixed-rate mortgage has struggled to break back below 7% after surging to more than a five-month high of 7.22% in early May, data from mortgage finance agency Freddie Mac showed.
Government data last week showed single-family housing starts and building permits fell in April. Homebuilder confidence deteriorated considerably in May.
Economists do not expect a significant decline in mortgage rates until the Federal Reserve starts cutting interest rates. The U.S. central bank has raised its benchmark overnight interest rate by 525 basis points since March 2022 to dampen demand in the economy and control inflation.
The Fed has kept its policy rate unchanged in the current 5.25%-5.50% range since July. Financial markets expect the central bank to start its easing cycle in September.
Home resales, which account for a large portion of U.S. housing sales, fell 1.9% on a year-on-year basis in April.
Residential investment is expected to slow considerably in the second quarter after notching double-digit growth in the January-March quarter.
Stocks on Wall Street were mixed. The dollar rose against a basket of currencies. U.S. Treasury prices fell.
Supply rises
Housing inventory increased 9% to 1.21 million units last month, the highest level since October 2021. Supply jumped 16.3% from one year ago.
Nonetheless, supply remains below the 1.8 million units reported for April 2019, months before the COVID-19 pandemic.
Many homeowners have mortgage rates below 4%. The so-called "rate lock" is starving the housing market of supply.
Properties typically stayed on the market for 26 days in April, up from 22 days a year ago. About two-thirds of houses went under contract within a month of listing, consistent with still-tight housing supply.
The rise in inventory was concentrated in homes priced $1 million or more, where supply rose 34% from a year ago. Sales in this price bracket soared 39.7% from a year ago. In contrast, houses priced $100,000 and below saw sales declining 7.1%. Sales in the $100,000-250,000 price range edged up 0.1%.
"It is a very frustrating market out there," said Lawrence Yun, the NAR's chief economist.
At April's sales pace, it would take 3.5 months to exhaust the current inventory of existing homes, up from 3.0 months a year ago. A four-to-seven-month supply is viewed as a healthy balance between supply and demand.
The median existing home price shot up 5.7% from a year earlier to $407,600, the highest price for any month of April. Home prices rose in all four regions. At least 27% of houses sold last month were above the listing price, indicating the prevalence of multiple offers in some areas.
"These dynamics should remain in place until mortgage rates drop enough to entice more existing homeowners to sell," said Ben Ayers, senior economist at Nationwide. "Unfortunately, mortgage rates are unlikely to decline meaningfully until 2025."
First-time buyers accounted for a third of sales, the highest share since January 2021 and up from 29% a year ago. That share remains below the 40% that economists and realtors say is needed for a robust housing market.
All-cash sales made up 28% of transactions in April, unchanged from a year ago. Distressed sales, mostly foreclosures, represented only 2% of transactions. This share has steadily risen from 1%, the rate that had prevailed for the past year.
"Borrowing costs will fall from where they are now, but not enough to fully offset mortgage rate 'lock-in' effects, which will continue to hold back sales volumes," said Thomas Ryan, North America economist at Capital Economics.
