U.S. existing home sales drop sequentially in April, rises in inventory levels to support housing activity in near term

Existing home sales in the U.S. dropped on a sequential basis in April. It fell 2.3 percent to 5.57 million after reaching a slightly downwardly revised decade high of 5.7 million in March. The headline print surprised on the downside as market had predicted a more moderate drop of just 1.1 percent.

The decline in existing home sales was mainly concentrated in the single-family segment where transactions dropped 2.4 percent to 4.95 million. Sales in condo/co-op segment, which is smaller and more volatile, dropped 1.6 percent to 620k.

Region wise, sales activity dropped in most of the regions, with the Midwest being the only exception. Meanwhile, the South, Northeast and the West regions recorded a fall.

The inventory of homes available for sale was up 7.2 percent sequentially on a seasonally unadjusted basis; however, it stayed low at 1.93 million and dropped 9 percent year-on-year. At the current sales pace, inventory accounts for just 4.2 months’ worth of supply compared to 4.6 a year ago. The low supply of homes available for sale is exerting upward pressure on prices, with the median home price rising strongly by 6 percent year-on-year, and just slightly weaker from last month’s 6.8 percent rise.

First-time homebuyers contributed 34 percent to sales, as compared with the contribution of 32 percent in the month prior and year-ago, while investors pulled back accounting for 21 percent of sales – down 2 percentage points from the earlier month.

Existing home sales were greatly expected in today’s report after reaching a decade high in March, noted TD Economics. Resale activity has been pretty volatile for many months, with mortgage rate movements and lack of inventory adding to the fluctuations. However, in spite of the monthly volatility activity has managed to retain a positive trend, highlighting the increasing demand for housing.

“Low inventory levels and price growth that's outstripped income gains remain major near-term headwinds for housing market activity”, said TD Economics.

Still, some retraction in mortgage rates in recent weeks might aid in alleviating affordability pressures, and along with certain rises in inventory levels should give some support to activity in the housing market in the near term.

“Continued progress in the labor market, characterized by rising employment, participation rates, and incomes, should together drive housing demand and help resale activity retain an upward trajectory over the medium term”, added TD Economics.