The drop isn’t because people don’t want to buy. It’s because there aren’t enough homes on the market to satisfy burgeoning demand.

By Manuel Gutierrez, Consulting Economist to NKBA

The National Association of Realtors revealed that sales of existing homes in April fell by 2.7% to an annual rate of 5.8 million units. This marks the third consecutive month of lower home sales.

Despite these declines, home sales are running ahead of last year, as can be seen in Figure 1. However, in the same period in 2020, the nation was in the midst of the pandemic shutdown. Last April saw the low for existing homes — 4.4 million units (annualized rate) —  and a rapid 18% plunge from levels just two months earlier.

One of the reasons given to explain this year’s purchasing decline has been the scarcity of homes available for sale. This situation has played out over the last few months, as inventory of homes, shown in the left panel of Figure 2, had steadily fallen since May 2020. Back then, there were 1.55 million homes on the market, sufficiently high to last 4.6 months at the sales pace of that month.

Sales prices of existing homes in April averaged $365,000 — nearly 14% above a year ago and steeper than the heady increases of the early 2000s.

First-time home buyers accounted for 32% of the homes sold in April, slightly above  the 31% of  the previous year. All-cash sales accounted for 15% of the homes in March (the latest available), also slightly higher than last year’s 13%.

The latest April inventory increased modestly to 1.16 million homes, up from 1.05 million the month before. Although inventory increased, some of these homes may not be available in areas where potential buyers are seeking to purchase a home.

At the current sales pace, existing inventory would last just 2.4 months. This is also a modest improvement over March’s pace, but still lower than the 3.5 months highlighted by the gray dashed line in the right panel of Figure 2.

Without the inventory shortages, home sales would surely be higher. Low inventory, combined with the strong demand for homes, continues to push prices higher, often resulting in bidding wars. The price of existing homes sold in April reached an average of $365,000, 13.8% higher than a year ago.

This is the highest year-over-year price increase since the data has been recorded. Even during the boom years in the early 2000s, when there was a similar situation of sharply rising home sales, home-price increases reached just above 10%.

Stories currently abound about home sellers receiving multiple offers for their homes. Many homes are sold at prices above list, sometimes considerably above, which is a boon for sellers.

But that’s a two-edged sword: In fact, many potential sellers are hesitant about making a move for fear they won’t be able to find a house to purchase at a reasonable price.

The national drop in April home sales played out in three of the four regions. Only the Midwest posted higher numbers, although it was a minimal 0.8% to an annual rate of 1.29 million units.

The other three regions posted similar declines, ranging between 3% and 4% (Figure 4.)

The largest drop was in the Northeast, where home sales fell by 3.9% to an annual pace of  730,000 units. This region is the smallest by number of home sales, however, accounting for just 12% of the national total.

The largest and most important region, the South, had the second biggest drop in April home sales. The 3.7% decline brought sales to an annual rate of 2.6 million units.

Sales in the West also fell, by 3.1% to 1.23 million.

Note in Figure 4 that, except for the Midwest, the sales pace maintained over the last few months exceeded total sales for all of last year.