Home prices are crumbling and making their biggest plunge in 11 years

Home prices have tumbled to their lowest level in more than 11 years as rising mortgage rates are a blow to the American Dream.

Existing home sales — the largest share of the market — fell 3.4 percent in April from the previous month to a seasonally adjusted annual rate of 4.28 million, the National Association of Realtors said Thursday. April sales were more than a fifth lower than last year.

The median existing home price fell 1.7 percent from a year earlier to $388,800 in April. Still, markets in the Northeast and Midwest regions reported price increases.

Existing home sales have fallen by about a third since early 2022, as high mortgage rates have made buying unaffordable for many. Meanwhile, the relentless rises are eroding real estate supply as existing owners are reluctant to move from pegged low rates.

The housing market has taken the brunt of the Federal Reserve’s fastest monetary tightening campaign since the 1980s after loose fiscal policies under Joe Biden flooded the economy with money.

The average interest rate on a 30-year home loan has largely fallen in recent weeks and has fluctuated around 6.3 percent since the beginning of March. But that is still 1.5 percent higher than a year ago.

When mortgage rates rise, they can add hundreds of dollars a month in home buyer costs on top of already high home prices.

The increased rates and stubbornly low supply of homes on the market have forced many potential homebuyers to the sidelines over the past year, resulting in a lackluster start to the spring home buying season.

For the first four months of 2023, existing home sales are about 27 percent below the pace in the same trajectory last year. Revenue is down 33 percent from its most recent peak in January 2022.

The shortage of homes for sale has kept the market competitive, sparking bidding wars in many markets, especially for the most affordable homes.

All told, there were 1.04 million homes on the market at the end of April, up 7.2 percent from the previous month and up 1 percent from April last year, the NAR said.

At the April sales rate, it would take 2.9 months to deplete the current stock of existing homes, compared to 2.2 months a year ago. A supply of four to seven months is seen as a healthy balance between supply and demand.

Further strangulation of the market are shortages of transformers and other building materials that have significantly slowed the rate at which new homes are completed. Tightening credit conditions may also make it more difficult for builders to finance new projects.

Property typically remained on the market for 22 days in April, compared to 29 days in March. Seventy-three percent of homes sold last month were on the market for less than a month. New buyers accounted for 29 percent of sales, up from 28 percent a year ago.

28 percent of transactions were entirely cash, compared to 26 percent a year ago. Distressed sales, including bankruptcies, accounted for just 1 percent of transactions, unchanged from March and the previous year.