Existing and New Home Sales Retreat in April as Interest Rates Weigh on Demand

Key Takeaways:

• Existing home sales declined 1.9 percent to a seasonally adjusted annualized rate (SAAR) of 4.14 million, according to the National Association of REALTORS® (NAR). The number of homes available on the market jumped 9.0 percent to 1.21 million, the highest level since October 2022. The months’ supply rose three-tenths to 3.5, while the NAR’s measure of the median sales price of existing homes sold rose 5.7 percent compared to a year ago.
• New single-family home sales declined 4.7 percent to a SAAR of 634,000 in April following a downward revision to March’s data, according to the Census Bureau. The months’ supply rose six-tenths to 9.1, the highest level since November 2022. The number of new homes available for sale increased 2.1 percent to 480,000, the highest level since January 2008.
• The minutes from the Federal Open Market Committee (FOMC) April 30 - May 1 meeting showed officials are likely to maintain a higher-for-longer policy stance, noting “the disinflation process would likely take longer than previously thought.” In addition, “various participants mentioned a willingness to tighten policy further.” With regard to balance sheet runoff, “almost all” participants supported reducing the cap on the runoff of Treasury securities, with “a few” participants saying they would have supported keeping the current cap or reducing the cap by less than the $35 billion per month that was decided upon.

Forecast Impact:

The decline in existing home sales was in line with our second quarter forecast. The climb in mortgage rates from mid-March through early May is likely to continue to affect sales later in the quarter, though we believe further downside risk is limited because existing home sales are already near their “floor.” The increase in homes available for sale remains supportive of our forecast for a gradual drift upward in home sales activity in the second half 2024 and beyond. New home sales were a bit below our expectations, though, and will likely lead to a downward revision to our near-term forecast. However, with new sales relatively soft and the months’ supply rising, we view this report as consistent with our forecast for a near-term pullback in single-family starts. Looking forward, we continue to expect growth in both new home sales and single-family starts in the second half of the year as the inventory of existing homes for sale, though rising, remains below pre-pandemic levels.

The minutes from the FOMC continue to highlight a likely ‘higher-for-longer’ policy stance, barring a significant deterioration in labor market conditions. While we continue to forecast two rate cuts this year, with the first occurring in September, risks remain weighted toward less easing.

Nathaniel Drake
Economic and Strategic Research Group
May 23, 2024

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