The housing market experienced a decline in March home sales despite an increase in available properties. According to the National Association of Realtors, sales of previously-owned homes dropped 4.3% compared to February, with a seasonally adjusted annualized rate of 4.19 million units. This decrease followed a significant jump in sales the previous month.
One of the main factors contributing to the slowdown in home sales is rising mortgage rates. In January, mortgage rates remained relatively low, hovering in the mid 6% range for the popular 30-year fixed loan. However, they shot up in February, impacting the number of prospective buyers who could afford to purchase a home.
Regionally, sales saw a decline across the board except for the Northeast, where they actually rose by 4.2% month-to-month. The hardest-hit region was the West, which experienced an 8.2% decrease in sales. The West also had the highest home prices, further complicating the affordability issue.
Lawrence Yun, NAR’s chief economist, explains that although home sales have rebounded from cyclical lows, interest rates have not significantly moved. He notes that there are nearly six million more jobs now compared to pre-COVID highs, indicating that there are more potential home buyers in the market.
Inventory did see a slight improvement, with a 4.7% increase month-to-month, resulting in 1.11 million homes for sale by the end of March. However, this only translates to a 3.2-month supply at the current sales pace. Inventory is now 14.4% higher than it was in March of the previous year.
Despite the increase in supply, home prices have not cooled down. The median price of an existing home sold in March reached $393,500, marking a 4.8% increase from the previous year and setting a new record for the month of March. However, the annual comparison did show a slight decrease compared to the previous month.
The spring housing market is becoming increasingly competitive, with homes spending less time on the market. The average number of days a home sat on the market in March was 33, compared to 38 days in February. This indicates that buyers are acting fast and making quicker decisions.
Investors pulled back slightly, accounting for 15% of sales in March compared to 21% in February and 17% the previous year. On the other hand, first-time buyers made a comeback, representing 32% of sales, up from 26% in February and 28% the previous year.
All-cash purchases accounted for 28% of sales, showing a decrease from 33% in February but an increase from 27% compared to one year ago. Prior to the pandemic, all-cash purchases typically made up around 20% of sales.
Mortgage rates have continued to rise this month, with the average rate on the 30-year fixed loan hovering around 7.5%, according to Mortgage News Daily. Lawrence Yun acknowledges that reaching a round number like 7.5% can create a psychological barrier for buyers.
In conclusion, despite an increase in available properties, March home sales experienced a decline due to rising mortgage rates. The West region was hit hardest by the slowdown, while the Northeast saw an increase in sales. Home prices continued to rise, setting a new record for the month of March. The housing market is becoming more competitive, with homes selling faster and buyers making quicker decisions. Investors pulled back slightly, while first-time buyers made a comeback. All-cash purchases also saw a slight decrease compared to the previous month but remained higher than pre-pandemic levels. With mortgage rates continuing to rise, the future of the housing market remains uncertain.
