April Pending Home Sales Hit Pandemic Low

Signed sales contracts on existing homes dropped 7.7% in April compared to March, marking the slowest pace since April 2020, according to the National Association of Realtors. Pending sales, which indicate future closed sales, were also 7.4% lower than in April last year, despite expectations of stable sales. This decline reflects buyers’ reactions to rising mortgage rates, which hit 7.5% by the end of April, compounded by high home prices and low inventory.

The drop in sales affected all regions, with the Midwest and West experiencing the most significant declines. Chief economist Lawrence Yun noted that higher rates dampened buying, even with increased inventory. However, the anticipated Federal Reserve rate cut later this year could improve conditions. In response to slow sales, the share of sellers cutting prices in May reached its highest level since 2022, and active inventory in April was 30% higher than a year ago, suggesting a potentially more active summer market if mortgage rates fall.

Freddie Mac: U.S. Needs 1.5 Million More Homes

According to Freddie Mac economists, the U.S. housing market is short by at least 760,000 for-sale units and another 760,000 for-rent units, making it 1.5 million units shy of being balanced. This shortage means the market needs an additional 1.5 million vacant homes to align with historical vacancy rates. Without this supply, housing market pressures will continue. However, the analysis used for this estimate likely underestimates the total shortage as it needs to account for latent housing demand and non-market vacant units.

Previously, Freddie Mac estimated a 3.8 million home shortage using a different methodology. This latest analysis focuses solely on immediate for-sale and for-rent units, excluding broader demand factors. Despite slight improvements in housing inventory, the substantial undersupply remains a significant obstacle for the market, as highlighted by Len Kiefer, deputy chief economist at Freddie Mac.

Buyers Are Beginning to Push Back on Home Prices

Sellers are struggling with high mortgage rates, limiting demand during the peak home-buying season. More owners are cutting asking prices to attract buyers as inventory remains on the market longer. With mortgage rates staying above 7%, buyers are reluctant to enter the market, and the hoped-for rate cuts by the Federal Reserve have yet to materialize, keeping borrowing costs high. This has led to a disappointing spring selling season, with median home prices still rising and the average rate on a 30-year mortgage hovering near 7%.

Geography is a key factor in understanding the current sales trends. Sun Belt markets, such as Florida and Texas, which experienced a boom during the pandemic, are now cooling as prices are pushing people out. On the other hand, western markets like Seattle and San Francisco, which had corrections in late 2022, are starting to recover. This is reflected in the significant decrease in contract signings in cities like Houston and Atlanta, while San Jose has seen an increase. Overall, the market remains challenging for both buyers and sellers, with active listings on the rise and price reductions becoming more common. The recovery of the housing market is slow, with high costs and limited supply continuing to pose challenges for potential buyers.