Three factors have prevented many buyers from making a deal
Existing-home sales have adopted an up and down pattern since the start of the year and continued in that trend in February.
The National Association of Realtors reported that total existing-home sales fell 7.2% from January to an annualized rate of 6.02 million in February. Sales activity was also down 2.4% year over year to 6.17 million last month.
While it is tempting to blame the decline on the recent run-up in mortgage rates, Mortgage Bankers Association chief economist Mike Fratantoni said that the February sales figures were likely the result of two persistent housing challenges.
“Given that last month’s sales numbers represent closings, the decline in sales came at a time earlier this year when rates were lower. The more likely reasons for the drop in sales were the ongoing lack of housing inventory and the resulting increase in home values that priced some buyers out of the market,” Fratantoni said. “From a lending perspective, while the number of sales declined somewhat, with 15% home-price growth, the dollar volume of sales and purchase originations have increased over the past year.”
NAR chief economist Lawrence Yun noted that rising rates and escalating prices have prevented many prospective homebuyers from making a purchase.
“Housing affordability continues to be a major challenge, as buyers are getting a double whammy: rising mortgage rates and sustained price increases,” Yun said. “Some who had previously qualified at a 3% mortgage rate are no longer able to buy at the 4% rate. Monthly payments have risen by 28% from one year ago – which interestingly is not a part of the consumer price index – and the market remains swift with multiple offers still being recorded on most properties.”
According to Freddie Mac’s latest survey, the 30-year mortgage rate jumped to its highest level in three years, averaging 4.16% last week. The median existing-home price has also skyrocketed 15% annually to $357,300 in February, marking the 120th straight month of year-over-year gains.
“The sharp jump in mortgage rates and increasing inflation is taking a heavy toll on consumers’ savings,” he said. “However, I expect the pace of price appreciation to slow as demand cools and as supply improves somewhat due to more home construction.”
Total housing inventory increased 2.4% from January to 870,000 units in February, with unsold inventory sitting at a 1.7-month supply. About 84% of homes sold last month were on the market for less than a month.
On the bright side, Fratantoni highlighted the 27% month-over-month increase in the share of sales going to first-time homebuyers, who were responsible for 29% of sales in February.
“The strength of the 2022 housing market is dependent on the wave of millennial homebuyers reaching peak first-time homebuyer age and finding a way into this booming housing market. We are hopeful that the small increase in inventory and a slight slowing of home price growth seen in February will continue through this spring buying season,” Fratantoni said.