The numbers: An indicator of existing-home sales fell in April, suggesting that the housing market could be cooling in the face of high home prices.
Pending home sales dropped 4.4% in April compared with March, the National Association of Realtors reported Thursday.
On an annual basis pending home sales were up nearly 52%, but at this time last year, pending sales had fallen to a record low as the onset of the COVID-19 pandemic brought real-estate transactions to an abrupt halt.
“Contract signings are approaching pre-pandemic levels after the big surge due to the lack of sufficient supply of affordable homes,” said Lawrence Yun, NAR’s chief economist. “The upper-end market is still moving sharply as inventory is more plentiful there.”
The pending home sales index measures real-estate transactions where a contract was signed for a previously owned home but the sale had not yet closed, benchmarked to contract-signing activity in 2001. Economists polled by MarketWatch had projected a 1% increase for pending home sales in April.
What happened: Every region experienced a monthly decrease in pending home sales, except for the Midwest, where contract signings increased 3.5% on a monthly basis. Yun noted that the Midwest has the most affordable housing in the country, and suggested the increase there could be a sign that people are flocking to the region from pricier markets on the coasts.
The Northeast experienced the biggest downturn in pending sales, with a nearly 13% drop.
The big picture: The decline in pending sales is another sign that high home prices are making matters tough for home buyers. The market has continued to see record home-price gains — a reflection of the lengths that buyers are willing to go to in order to appeal to sellers. With so many buyers in the market and so few homes to go around, it’s natural for prices to rise as fast as they are.
But the latest pending sales report offers reason for caution. Buyers who have been unable to get into a contract for a home may eventually opt to give up and wait, hoping the market will be less competitive. That could throw cold water on the hot housing market, which could have ripple effects across other parts of the economy.
What they’re saying: ”Pending home sales, or contract signings, are an early indicator of existing home sales in coming months because they mark the point in time where a buyer and seller reach an agreement on price and terms. Today’s data shows that a ferociously competitive housing market is not making it easy for home buyers,” said Danielle Hale, chief economist at Realtor.com.
Market reaction: The Dow Jones Industrial Average and the S&P 500 were both up slightly in Thursday morning trading.