Rising interest rates led to a 7.7% drop in pending home sales in April, according to new data released Thursday.
Home sales have fallen in all four regions of the U.S., according to recent statistics from the National Association of Realtors (NAR). The association pointed to a decline in the Pending Home Sales Index (PHSI), a predictor of future home sales based on contract closings.
NAR chief economist Lawrence Yun said rising interest rates were a key factor in “the slowdown in homebuying even as inventory on the market increases.”
“However, the Federal Reserve’s planned interest rate cuts later this year should improve home affordability and increase supply, which should help the situation,” Yun added in a statement on Thursday.
The figures came shortly after the S&P CoreLogic Case-Shiller National Home Price Index, released last month, showed that home prices rose 6.4% in February from a year earlier.
A month earlier, home prices rose 6% year-on-year in January, the strongest growth in more than a year.
“Home prices have reached record highs, but the pace of increase should slow as supply increases,” Yoon said Thursday. “However, the outlook for any visible home price declines is minimal.”
According to NAR’s latest report, the Northeast PHSI fell 3.5% in April to 62.9, while the Midwest index was 70.7 last month, down 9.5%. The West’s index fell 8.5% over the same period to 55.9, and the South’s PHSI was 88.6, down 7.6%.
Yoon said Thursday that markets seeing price declines “will be viewed as a second chance for buyers to enter the market if employment continues to grow in these areas.”
Reacting to the recent data, Dr. Selma Hepp, chief economist at CoreLogic, highlighted a “significant shift in homebuying sentiment.”
“This time last year, potential homebuyers were considering jumping on the bandwagon despite high interest rates and few homes on the market,” Hepp said. “But with little prospect of interest rates falling in the near future, they’re now in a wait-and-see mindset.”
“Households are focusing on news headlines and perceiving rising insurance costs and disruptions from climate change as contributing to homebuying challenges, which is also negatively impacting sentiment,” Hepp added.
