Home sales are slowing as buyers struggle to find homes within their price range.
The number of existing home sales has fallen for three months in a row. Sales reached a seasonally adjusted annual rate of 5.85 million in April, a 2.7 percent decrease from March. Sales of newly built homes fell even further, and pending home sales, which measure pre-sale contracts, indicated that May will also show a drop when the figures are released later this month.
Meanwhile, the median existing home sale price increased 19.1 percent year on year to $341,600 in April, marking the ninth consecutive month of double-digit price increases. Home prices have been rising since last summer, thanks to record-low mortgage rates and a surge in buyer demand — but the high prices may be taking their toll.
“In general, low affordability reduces the number of buyers in the market and should slow sales,” says Ralph McLaughlin, chief economist at Haus, a home investment real estate startup. “Recent data, which show lower purchase mortgage applications and slower home sales, indicate that demand may be cooling.”
Despite the recent slowdown, sales are still higher than they were a year ago. Pending sales are nearly 52% higher than in April 2020, while existing home sales are up 34%. The year-over-year comparison is skewed because the real estate market was at rock bottom in April of last year due to pandemic lockdowns, but it shows how good the last year has been for sellers.
According to online brokerage Redfin, 72 percent of all offers in April were involved in a bidding war. One home in the D.C. area recently received 88 offers, the majority of which were cash. Because of the increased competition, most homes are selling for thousands of dollars above their asking price.
“The market has a long way to go before inventory levels begin to push it towards a buyer’s market,” McLaughlin says.
McLaughlin and other experts do not anticipate a drop in home prices anytime soon, as there are still more people interested in buying a home than there is available inventory. However, he believes that prices will eventually fall closer to income growth levels and settle at a more reasonable 4 percent to 5 percent annual growth rate.
At the end of April, total inventory stood at 1.16 million homes, representing a 2.4-month supply at current sales rates. This was a 10.5 percent increase over March, but it was still far short of the 6-month supply economists considered healthy.
If you want to buy a house this year, be prepared to be patient. Competition for available homes remains fierce, but as the supply shortage eases, there may be more opportunities to purchase.
McLaughlin advises planning ahead of time for all aspects of a home purchase. Finding the right lender, real estate agent, home inspector, and title company is all part of the process. It is essential to get pre-approved for a mortgage.
Don’t be disheartened if you don’t find your dream home this year.
“There is no shame in waiting until next year, when inventory levels may be more reasonable and the market pace will be slower,” McLaughlin says.