Housing Market Falters in April Amid High Mortgage Rates, Yet Prices Soar

Housing Market Falters as Mortgage Rates Rise, Prices Soar

The housing market stumbled in April as higher mortgage rates burdened both buyers and sellers, causing a notable decline in existing-home sales. Sales fell by 1.9% to a seasonally adjusted annual rate of 4.14 million, the lowest rate since January, according to the National Association of Realtors (NAR). This figure fell short of the consensus forecast of a 4.21 million annual rate.

Lawrence Yun, the NAR’s chief economist, expressed frustration over the stagnant sales figures. “It’s a bit frustrating that home sales are not climbing higher,” he said. The decline in sales continues a nearly two-year trend of poor performance in the housing market, with monthly existing-home sales remaining below the long-term average of about 5.3 million since June 2022.

Impact of Mortgage Rates

The faltering sales are largely attributed to the sharp fluctuations in mortgage rates during and after the pandemic. Initially, mortgage rates plummeted to historic lows in 2020 and 2021, but they began rising rapidly in mid-2022 as the Federal Reserve increased interest rates to curb inflation.

Currently, the average 30-year fixed-rate mortgage stands above 7% for five consecutive weeks, significantly higher than the 6.6% rate at the start of the year. This increase in mortgage rates has made purchasing a home more expensive, dampening demand.

Simultaneously, many homeowners with low fixed rates are reluctant to sell, a phenomenon known as the mortgage rate lock-in effect. According to a Federal Housing Finance Agency working paper, the likelihood of a home sale decreases by 18.1% for every percentage point increase in market mortgage rates relative to a homeowner’s origination rate. This effect prevented approximately 1.33 million sales between the second quarter of 2022 and the fourth quarter of 2023.

Homeowners cling to low fixed rates, hindering sales; an 18.1% drop per point hike stifles movement, WSJ Print Subscription said.

Rising Home Prices and Inventory

Despite the slowdown in sales, home prices have continued to rise. In April, the median home price reached $407,600, marking a 5.7% increase from the previous year. This figure is just 1.5% shy of the all-time high set in June 2022. Economist Peter Boockvar emphasized mixed signals in the broader economy. He noted homeowners’ increasing net worth due to rising home values. “For the first-time buyer, it’s tough.”

In April, first-time buyers constituted 33% of home sales, slightly up from March’s 32%, yet still below the preferred 40%, Yun reports. Despite this, he maintains optimism that housing prices will stabilize with the influx of more available inventory.

Future Outlook

There were 1.21 million units on the market at the end of April, a 16.3% increase from a year earlier. At the current pace, selling all houses would take 3.5 months, up from 3.2 in March. Yun forecasts mortgage rate decline if the Federal Reserve cuts interest rates, possibly boosting home sales. However, the timing of these reductions remains uncertain.

“Home prices reaching a record high for April is very good news for homeowners,” Yun stated. “However, the rate of price increases should moderate as more housing inventory becomes available.”

Embark on a financial odyssey with our Fusion Subscription, blending The Washington Post’s insights with Barron’s financial acumen. Transcend traditional analysis, embracing a synergy that enriches market understanding and empowers smarter financial choices.

Sales Support