Sales of existing homes dropped in April as home buyers continued to feel the pinch of higher interest rates. Existing home sales fell 6.2% in April to a 4.88 million annual rate, the
National Association of Realtors
reported Thursday. The decline comes on the back of an upwardly revised March home sales gain of 9.2%, which was initially reported as a 1.5% gain last month.
Year-over-year, sales of preowned homes were down 6.9% in April, indicating that last-year's feverish housing market has eased significantly since the
begun its efforts to raise interest rates last June. The interest rate increases were an attempt to slow the economy, which have so far resulted in a 1.75 percentage-point gain in short-term rates.
"I think the market is adjusting to generally higher mortgage interest rates with buyers switching to adjustable-rate loans, and in some cases buying less expensive homes," said Fred Flick, vice president of economic research at the Realtors association.
According to mortgage giant
, the Fed's most recent increase in short-term rates on May 16 continued to push mortgage rates higher. The rate for a 30-year fixed-rate mortgaged climbed to a five-year high of 8.64% in the week ending May 19, up from 8.52% the prior week and 7.23% the prior year.
That kind of a year-over-year rise in rates adds significantly to the monthly payment for the average home buyer. For example, a buyer of a $250,000 home with a 30-year fixed-rate mortgage could pay as much as $250 less per month than for the same mortgage today.
But even with demand slackening, the housing market remains at historically high levels, and home prices in most regions are continuing to rise. The national average existing home price in April was up 4.6% year-over-year to $136,700 -- almost double the rate of overall consumer inflation during the same period. That suggests that in addition to higher mortgage rates, the slower housing market may in part be due to a low supply of available homes.
That dearth of homes, however, may be reversing. The Realtors association said the supply of homes, measured by months' supply at the current sales rate, rose slightly to 3.9 months in April from 3.1 months in March. But still, the supply is 22% lower than Aprill 1999, when there was a five-month supply.
"More sellers are placing their homes on the market, so the tight housing situation we've seen in many areas is now beginning to ease," said Dennis Cronk, president of the Realtors association. "Our hope is this will bring a better balance between buyers and sellers in those areas where multiple bids on homes have become fairly common."
Regionally, sales in the Northeast declined most, down 7.7% from March and 9.1% year-over-year, even though prices in the region rose 6.3% versus April 1999. Home sales in the Midwest were down 5.3% from March, and down 7.8% from the prior year while sales in the South were down 7.2% from the prior month and down 4.5% versus the prior year. Sales in the West were down 3.7% from March and 8.5% year-over-year.