Existing Home Sales Decline Amid Surging Prices and Rising Mortgage Rates

In the latest housing market analysis, existing home sales have markedly declined as the combination of skyrocketing prices and elevated mortgage rates deter prospective buyers. The National Association of Realtors (NAR) reported on Wednesday that home sales fell by 1.9 percent in April, reaching an annualized rate of 4.14 million units.

The persistent increase in home prices continues to place significant strain on buyers. The median price for an existing home in April rose 5.7% to $407,600, as compared with the year before. This relentless escalation in prices has made homeownership increasingly unattainable for many Americans, particularly first-time buyers who are disproportionately affected by the affordability crisis.

Compounding the issue, mortgage rates have reached their highest levels in over a decade. Freddie Mac’s data reveals that the average rate for a 30-year fixed mortgage now stands at 7.25%, a significant jump from the 3.5% average recorded just two years ago. This steep rise in borrowing costs has further eroded purchasing power, making monthly mortgage payments prohibitively expensive for many.

Despite the decline in sales, housing supply has seen a notable increase. MarketWatch highlights that the inventory of unsold homes rose to a 3.5-month supply, the highest since October 2021. This paradox of rising supply alongside falling sales reflects a significant imbalance in the housing market. The increased inventory is largely attributed to potential buyers being priced out, leading to longer listing durations and a build-up of available homes.

Notwithstanding the present decline, Chief Economist Lawrence Yun forecasts that interest rates will fall in the long term, 2024 existing-home sales will rise to 4.46 million (up 9% from 4.09 million in 2023) and 2025 existing-home sales will increase to 5.05 million (up 13.2% from 2024) – with further gains in eight of the next 10 years – during the “Residential Economic Issues & Trends Forum” at NAR’s 2024 REALTORS^® Legislative Meetings.

Yun also explained that rents will calm down further, which will hold down the consumer price index (CPI) and make the Federal Reserve cut interest rates. Yun said that based on April’s employment data, there are six million more jobs compared to the pre-Covid highs, and jobs are boosting home prices.

The housing market’s current trajectory has broad economic implications. The slowdown in home sales could have a ripple effect on related industries, including construction, real estate services, and home improvement. Moreover, declining homeownership rates may impact consumer spending, as fewer people invest in property-related expenditures.

Critics argue that the Biden administration’s economic policies have exacerbated the housing crisis. The combination of expansive fiscal policies and regulatory constraints on land use and construction has been cited as a contributing factor to the surge in housing costs. Many conservative analysts contend that the administration’s approach has prioritized short-term economic stimulus over long-term market stability.

Consumer sentiment in the housing market remains subdued. The combination of high prices and mortgage rates has led to a decline in buyer confidence, as many are unwilling or unable to commit to purchasing in the current climate. This hesitancy is reflected in the declining sales figures and increased inventory levels.

The outlook for the housing market remains uncertain. While some analysts predict that prices may stabilize as demand wanes, others caution that the underlying supply constraints and economic policies could sustain high prices and mortgage rates for the foreseeable future. The market’s trajectory will largely depend on broader economic conditions, including inflation trends and potential policy shifts.

In the interim, prospective homebuyers face a challenging landscape, characterized by high costs and limited affordability. Policymakers and industry stakeholders must navigate these complexities to foster a more balanced and accessible housing market.