While home price growth topped +20% in March, pending home sales and existing home sales were both down in April. Do these data points translate into slower home price growth?
Big Turnaround from March to April
Home price growth jumped to +20.1% y/y in March, according to the CoreLogic Case-Shiller Home Price Index. Also in March, policy makers with the Federal Reserve enacted interest rates hikes while simultaneously indicating about seven more rate hikes through 2022.
Then April happened. Pending home sales plunged -9% to pre-pandemic levels, existing home sales slid -2.4% m/m and -5.9% y/y and interest rates, according to Freddie Mac, hit 4.98%, up from 4.17% in March.
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Reduced Buyer Activity
Lawrence Yun, Chief Economist with the National Association of REALTORS® (NAR), said, “Higher home prices and sharply higher mortgage rates have reduced buyer activity. It looks like more declines are imminent in the upcoming months, and we’ll likely return to pre-pandemic home sales activity after the remarkable surge over the past two years.”
NAR Market Outlook
- With housing demand declining, the overall housing market is softening.
- Prices are still hitting new highs but the pace of home price appreciation is slowing.
- Cash buyers, approximately 25% of all buyers, are undeterred by rising interest rates.
- Existing housing inventory at the end of April increased +10.8% m/m to 1,030,000 units
Housing Shortages Are Going Away
Homebuyers are finally getting a break in terms of supply. The number of listings increased +9% w/w during the last week in May on top of March listing increases being up +10.8% m/m, according to NAR.
Yun said, “Housing supply has started to improve, albeit at an extremely sluggish pace.”
Finally, with more listings beginning to appear, starved inventories around the country are starting to increase. Potential buyers who remain potential buyers despite rising interest rates (now sitting at 5.25%) are feeling less compelled to compete with exaggerated price offers in bidding wars just to nab a listing.
What About Price Cuts?
It’s true that more and more sellers are making cuts to their original listing prices but those price cuts don’t mean that higher prices will magically go away.
Yun said that sellers are pricing their homes at +20% above what they were listing their homes for last year. The result? Sellers making price cuts are really only cutting their prices by -10%. When all is said and done, sellers’ prices are usually +10% higher than they were last year.
Pace of Home Price Acceleration Slowing, Not Going Away
Yun said that the pace of home price increases is slowing, not disappearing. Home prices will continue to increase, just at a slower pace. Rather than increasing +20% m/m as they did in March, Yun sees home prices increasing +5% by the end of 2022.
Optimistically, Yum said, “It is inevitable that price appreciation will slow back down to pre-pandemic levels…(but)…listed homes are still selling swiftly and home prices are…higher than a year ago.”
While the potential buyer pool is shrinking, primarily due to climbing interest rates, Yun is hoping that interest rates will soon stabilize and that job growth will continue to support homebuying.
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Thanks to the National Association of REALTORS® and CNBC.
