Existing-Home Sales Fall for Third Straight Month—So What’s Going On?

The numbers: Existing-home sales declined yet again, a result of the low inventory of properties for sale and rising prices keeping buyers at bay.

Existing-home sales fell 2.7% to a seasonally adjusted annual rate of 5.85 million in April, the National Association of REALTORS® reported. It was the third consecutive month in which home sales fell. Compared with April 2020, home sales were up nearly 34%, though the year-over-year comparisons are skewed by the onset of the COVID-19 pandemic in the early months of last year.

“Home sales were down again in April from the prior month, as housing supply continues to fall short of demand,” Lawrence Yun, chief economist at the National Association of REALTORS®, said in the report.

“We’ll see more inventory come to the market later this year as further COVID-19 vaccinations are administered and potential home sellers become more comfortable listing and showing their homes,” Yun said, adding that the declining number of homes in forbearance would also help matters.

What happened: The Midwest was the only region to see sales growth between March and April, with a 0.8% uptick. The Northeast had the biggest decline, with a 3.9% drop in sales.

The overall decline in sales was caused by a 3.2% drop in single-family home sales — whereas sales of condominiums and co-ops rose 1.4% from March.

The median existing-home price in April was $341,600, a new record high that represents a 19.1% increase from a year before. Properties stayed on the market for 17 days in April on average, and 88% of homes sold last month were on the market for less than a month.

There were signs of improving inventory conditions, though. Unsold inventory was at a 2.4-month supply in April, up from a 2.1-month supply the month before.

The big picture: Most economists argue that one the biggest factors holding back the housing market right now is a lack of inventory. Unfortunately for everyone in the housing market, from home buyers to real-estate agents to mortgage lenders, it could take years to rectify the situation.

A new analysis from title insurer First American Financial Corp. examined the “Great Housing Supply Crash” of the past year — and explained how it was really years in the making.

A lot of Americans who already own homes opted not to sell them this past year, in many cases because of concerns related to the pandemic. As these homeowners start to warm to the idea of selling now that COVID cases are lower and vaccines are readily available, that should reduce some of the pressure.

But it won’t solve everything. “Inventory turnover — the supply of homes for sale nationwide as a percentage of occupied residential inventory — was low even prior to the pandemic, but dropped precipitously last spring,” First American chief economist Mark Fleming wrote in the report. Plus, years of underbuilding mean that America in general doesn’t have enough housing to go around.

To truly get supply and demand back in sync, it “will take years of accelerated new home construction,” Fleming wrote, adding that “an end to the pandemic by itself is unlikely to bring enough sellers to the market to bridge the gap.”

What they’re saying: “Despite still-strong demand for “more house” amid the work-from-home trend, inventories remain extremely lean. Pending home sales have wilted, and new mortgage applications have slowed, suggesting activity has somewhat been capped as home prices surge and mortgage rates creep higher.

“Overall, while the housing market is likely to remain sturdy, we expect momentum to ease by the end of the year,” Priscilla Thiagamoorthy, an economist with BMO Capital Markets, wrote in a research note.

“Even if a bit wary of the conditions they face in today’s market, buyers remain eager, which has resulted in quick home sales and at record prices,” said Danielle Hale, chief economist at Realtor.com.

“Meanwhile, rising seller sentiment could mean some relief is ahead with perhaps even a greater than normal share of homeowners stepping in the market later this year,” she added.

“While it’s not enough to end the shortage of homes for sale, this wave of sellers will make a dent, giving home buyers more options to choose from,” Hale said.

“Fewer than 1 million existing single-family homes are now on the market, less than half the 2 million low at the peak of the boom in 2005. As supply starts to rise, the recent explosive rate of increase in home prices probably will slow,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a research note.

Market reaction: The Dow Jones Industrial Average and the S&P 500 were both up in Friday morning trading, with the S&P vanquishing a weekly loss early in the session.

Source: realtor.com®