U.S. Pending Home Sales Plunge 6.3% in April, High Mortgage Rates Blamed

In April, the U.S. saw a significant decline in the number of existing home contracts signed, marking the largest drop since September 2022. This downturn reflects a disappointing spring selling season, as potential buyers are deterred by high prices and borrowing costs.

The National Association of Realtors (NAR) reported that the Pending Home Sales Index for April decreased by 6.3%, reaching 71.3. This figure fell short of economists' expectations, with the West region experiencing the largest decline in over two and a half years.

The disappointing data suggests that the existing home market will remain sluggish until prices fall from their record highs and mortgage rates stabilize closer to 6% rather than the current 7%. While more homeowners are choosing to list their properties, others are waiting for more affordable financing options. As NAR's Chief Economist Lawrence Yun stated, the market's key factor is "completely dependent on mortgage rates."

"Despite the increase in housing inventory, we have not seen an increase in housing sales," Yun said in a statement. "A decrease in mortgage rates is crucial for attracting homebuyers back to the real estate market."

All four regions experienced declines, with the West region seeing the largest drop of 8.9%. The South, the largest housing market in the U.S., saw a 7.7% decrease, while the Midwest region declined by 5%.

The decline in the Pending Home Sales Index for April indicates that the U.S. existing home market had a lackluster spring selling season, with potential buyers stepping back due to high prices and loan costs. Notably, February and March saw slight increases in existing home sales, briefly raising hopes for a strong spring selling season.

Yun emphasized that the core issue is the high mortgage rate, currently at 7%, which is beyond the affordability range for many homebuyers. He believes that the market could regain momentum if rates drop to around 6%. He also noted that while housing supply has increased, it has not led to higher sales volumes. "More inventory has not resulted in more sales; only lower mortgage rates can attract buyers back to the market," Yun said.

Economists also pointed out that the reliability of the Pending Home Sales Index as a leading indicator has diminished in recent months due to the unstable conversion rate from contract signing to final sales. Yun mentioned that the cancellation rate for existing home sales from January to April 2024 reached 7%, the highest this year.

Despite this, the Pending Home Sales Index is still considered a leading indicator for existing home sales, as properties typically remain under contract for one to two months before finalizing the sale.