Pending home sales took a sharp dive last month as buyers pulled back from the market in response to rising interest rates, according to the latest data from the National Association of Realtors (NAR).
The NAR’s index tracking homes under contract plummeted nearly 8% on a monthly basis and over 7% annually in April. This decline in pending home sales serves as a forward-looking indicator of the housing market, with properties under contract typically closing within a month or two.
The drop in transaction volume in April was largely attributed to rate-sensitive homebuyers who were deterred by a more than quarter-point increase in interest rates, which surpassed 7%.
Lawrence Yun, chief economist at the NAR, noted, “The impact of escalating interest rates throughout April dampened home buying, even with more inventory in the market. But the Federal Reserve’s anticipated rate cut later this year should lead to better conditions, with improved affordability and more supply.”
Pending sales saw decreases across all four regions of the US, with the Midwest and the West experiencing the steepest declines at nearly 10% and 9%, respectively. The South and the Northeast also saw drops of 8% and 4%, respectively.
The housing market is facing a triple threat of rising mortgage rates, limited inventory, and soaring prices. The average mortgage rate surged to 7.17% last month, causing prospective buyers to rethink their purchasing decisions. Additionally, the supply of unsold inventory remains low, with only a 3.5-month supply available at the end of April.
Despite the challenges, home prices continue to climb, reaching a record high in March. The S&P CoreLogic Case Shiller index reported a 6.5% annual increase in national home prices in March, with several cities seeing even higher gains.
While there is hope that falling interest rates in the coming months could provide some relief to the housing market, experts remain cautious about the long-term impact on affordability and supply.