Existing home sales fall in February
Home buying activity lost momentum in February.
Existing home sales fell 7.2% to 6.02 million seasonally adjusted units in February from the previous month, according to the National Association of Realtors (NAR). The number of sales decreased by 2.4% compared to the same month a year ago. January home sales figures were revised down slightly to 6.49 million from 6.5 million. The results were well above analysts’ expectations of a 6.2% month-over-month decline to 6.1 million units, according to Bloomberg consensus estimates.
“The latest decline is of greater than normal magnitude,” said Lawrence Yun, chief economist at NAR, noting that anything above 5% is considered a big swing.
Sales in all four regions of the United States fell, with the Northeast and Midwest leading the declines posting declines of 11.5% and 11.3%, respectively. Sales fell 5.1% in the South and 4.7% in the West.
The decline in actual home sales should not have come as a surprise given the decline in pending home sales in the first month of this year and the previous two months. Pending home sales, a leading indicator of the housing market, indicate when buyers are first signing contracts. Thus, the actual sale of a house usually takes place at least a month later.
“All of a sudden, this would bring sales back in line with the number of mortgage applications, allowing for the usual lag, as our next chart shows,” Pantheon Macroeconomics said in a research note ahead of the results. “It’s likely that pending sales in January were depressed by both bad weather and the Omicron wave, but any rebound will be brief, given the downward trend in mortgage demand.”
The median existing home price for all housing types in February rose 15% to $357,300, up 15.0% from February 2021 as prices rose in every region. This marks 120 consecutive months of year-over-year increases, the longest streak on record.
“After 10 consecutive years of rising home prices, the current median U.S. home sale price is more than double the median of $155,600 in February 2012, when home prices began their current streak. “, Realtor.com Chief Economist Danielle Hale said in a press release.
“Housing affordability continues to be a major challenge as buyers take a double whammy: rising mortgage rates and sustained price increases,” Yun said. “Some who previously qualified for a 3% mortgage rate are no longer able to buy at the 4% rate.”
This week, the rate on a 30-year fixed mortgage, the most common for buyers, jumped to 4.16% from 3.85% a week ago, according to Freddie Mac. This is the highest level since May 2019.
According to Yun, at current interest rates, monthly mortgage payments for first-time home buyers are up 28% from a year ago.
“While consumers were largely anticipating the Federal Reserve’s rate hike this week, there was strong incentive for them to act quickly on listed homes when submitting new offers and to follow through on outstanding offers,” Hale said.
Early buyers were responsible for 29% of sales in February, down from 27% in January and down from 31% in February 2021. And still below historical norms of 30% to 40%, Yun noted.
Lack of inventory continues to push prices north. Total housing inventory at the end of February totaled 870,000 units, up 2.4% from January and down 15.5% from a year ago. Unsold inventory sits at 1.7 months supply at the current selling rate, up from record high supply of 1.6 months in January and down from 2.0 months in February 2021.
Yun said that every February there is a drop in homes for sale with a slight uptick in the spring. He remains bullish on inventory recovery at the end of the summer given the latest residential construction activity.
“The recent ramp-up in new home construction will help add much-needed supply to the market,” Hale said.
U.S. homebuilding rebounded in February at the fastest pace since 2006, according to new data released Thursday by the Commerce Department. Housing starts jumped 6.8% to a seasonally adjusted annual rate of 1.769 million units last month.
But it will take time for new inventory to hit the market and meet continued demand. Despite the drop in activity last month, sales of existing homes still exceed pre-pandemic activity, which is about 5.5 million homes per month.
“It is still difficult to buy. There are several offers [on homes]”, Yun said. “Mortgage rates are rising, and it will be interesting to see what happens in the coming months.”
Amanda Fung is a staff writer at Yahoo Finance. Follow her on Twitter: @amandafung
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