By: Nicole Friedman
America’s home-buying frenzy is cooling off for the first time since it heated up last year, as limited inventory and record high prices are excluding potential buyers.
Existing-home sales fell 2.7% in April from March to a seasonally adjusted annual rate of 5.85 million, the National Association of Realtors said Friday. April marked the third straight monthly decline, the longest downward stretch since last spring, when Covid-19-related lockdowns eased and have boomed in the past year.
The forces driving home sales haven’t gone away. Low mortgage rates and the rise of remote work, which sent buyers scrambling to find larger living spaces, are still spurring demand.
This year started off strong, after 2020 experienced the fastest pace of home sales in 14 years.
But a deficit of homes for sale relative to intense demand and vertiginous housing prices have started easing the pace of sales. The median existing-home price rose to $341,600 in April, the highest on record, NAR said. The annual price appreciation of more than 19% was the strongest in data going back to 1999.
“The rise in prices that we’ve seen and the lack of supply, particularly at lower price points, is dragging down sales,” said Nancy Vanden Houten, lead economist at Oxford Economics. “I think that’s going to be the story moving forward.”
The U.S. housing market was a bright spot in an otherwise sputtering economy for much of past year. Housing was one of the few sectors that responded positively to the changing lifestyle dynamics brought on by the pandemic.
Now, as the broader economy looks stronger, the housing market is showing its first real signs of slower growth.
Analysts cautioned against overstating the slower pace, noting that home sales still stand at a historically high level. Near-record-low borrowing rates, and a wave of millennials entering their prime home-buying years, are still spurring strong demand.
“Even with home sales declining modestly, one can describe the market as being hot,” said Lawrence Yun, NAR’s chief economist.
Many brokers also hope that increasing vaccinations and the loosening of federal and local restrictions will encourage more homeowners to list their properties.
Yet the third straight month of weaker sales growth caught many housing analysts by surprise. Economists surveyed by The Wall Street Journal expected a 0.2% monthly increase in sales of previously owned homes, which make up most of the housing market.
Demand for newly built homes has also climbed in the past year, but builders’ ability to increase production is limited by the amount of available land and material costs, like lumber.
Housing starts, a measure of U.S. home-building, fell 9.5% in April from March, the Commerce Department said this week.
“The big story in the housing market is all the constraints on builders,” said Robert Frick, corporate economist at Navy Federal Credit Union. “The supply is just too low.”
That’s one reason why existing homes are selling unusually quickly. The typical home that sold in April spent 17 days on the market, the quickest pace on record in data going back a decade, NAR said.
The country’s fastest moving housing market in April was Indianapolis, where the typical home went under contract after only four days, according to brokerage Redfin Corp.
“Hopefully the inventory comes back up, because it’s just been nuts,” said Chris Golightly, a real-estate agent in Indianapolis. “It’s fantastic for the seller, but it sure can create some really frustrated potential buyers.”
There were 1.16 million homes for sale at the end of April, up 10.5% from March and down 20.5% from April 2020. At the current sales pace, there was a 2.4-month supply of homes on the market at the end of April.
Kendra Mahoney and Kevin McGrath made three unsuccessful offers to buy homes in the Boston suburbs before getting one accepted in April. For the house they bought, they viewed it the first day it was on the market and brought an inspector with them to the showing, Mr. McGrath said. That helped them feel comfortable putting in an offer that didn’t require a home inspection, to make their bid more appealing to the seller. The sale closed in May.
“I have a lot of empathy for anyone going through the process right now. It’s really tough,” Mr. McGrath said. “We were just so relieved that something ended up working out for us.”
First-time buyers accounted for 31% of sales in April, down from 32% in March, NAR said. All-cash transactions made up 25% of sales, up from 23% in March.
Sales continued to be especially strong at the high end of the market, as sales of homes priced over $1 million more than tripled in April compared with a year earlier, according to NAR.
Picture: unsplash/Trinity Nguyen
Write to Nicole Friedman at nicole.friedman@wsj.com