Housing economists were left scratching their heads this week over a National Association of Realtors report showing U.S. existing home sales fell in April.
In the prior month, signed contracts to purchase a home, known as pending home sales, climbed to an eight-month high and were up by nearly 4% from the prior month. You sign a contract and a month or two later you buy the home. That’s the way it’s supposed to work.
At least some of those March contracts should have shown up as sales by the end of April, especially contracts that were signed in early March, said David Berson, chief economist for Nationwide. Instead, seasonally adjusted home sales dropped by almost half a percentage point.
“The 0.4% decline in existing home sales was a big surprise,” said Berson, who was formerly chief economist at Fannie Mae. March’s pending home sales suggested “existing home sales should have seen a substantial rise for April,” Berson said.
One possible explanation is: Because of the drop in mortgage rates seen at the end of March, it may be taking longer to close a mortgage because of more demand for refinances, he said. Data from Ellie Mae shows that in April it took 43 days to close a mortgage, up from 42 days in the year-earlier month. In March, it took 45 days to close a home loan, up from 43 days a year earlier.
The National Association of Realtors will release a report showing May home sales on June 21.
“The jump in pending sales from March may show up in May existing sales rather than in April,” Berson said. “With mortgage rates having fallen so sharply in recent months, there has been a rise in both purchase and refinance mortgage applications, so it may be that home loans for purchases are being approved more slowly – enough so that the lag between pending and existing sales has widened.”
The volume of mortgage applications to purchase homes has climbed to the highest level in more than a decade, Berson said, citing data from the Mortgage Bankers Association. And, new-home sales are up.
“There is no reason to expect that the new and existing home sales markets should move in opposite directions on a trend basis,” Berson said. “After all, the same demand factors drive them both: household formations, job and income gains, and affordability.”
“Our best guess is that existing home sales will see a significant gain when reported next month, as all of the underlying demand factors remain positive,” Berson concluded.