Sales of previously owned homes declined in February as rising mortgage rates and a shortage of homes for sale made it harder for buyers to compete.
Existing home sales fell 7.2% in February from the previous month to a seasonally adjusted annualized rate of 6.02 million, the National Association of Realtors said Friday. February sales fell 2.4% from the previous year.
The demand to buy a home far exceeds the number of homes available for sale. Buyers are eager to buy homes in the event of a further increase in mortgage interest rates. Potential sellers do not want to become buyers in such a frenetic market and prefer not to put their homes up for sale, keeping the home inventory on the market at an all-time low.
Some buyers are leaving the market, discouraged by large-scale bidding wars and rising home prices. Many homes continue to receive numerous offers and sell quickly at the list price.
The median price of an existing home rose 15% year-over-year to $357,300 in February, according to NAR.
“Not only are mortgage rates going up, which is now pushing more attention to people’s budget constraints, but inventory shortages continue,” said Lawrence Yun, chief economist at NAR. “As a buyer, it’s still hard for me to get into the market.”
Economists polled by The Wall Street Journal had expected a 5.7% monthly decline in sales of previously owned homes, which make up the bulk of the housing market.
The combination of soaring home prices and higher mortgage interest rates is making homeownership less affordable, especially for first-time homebuyers who have to make larger upfront payments as home prices rise.
U.S. house prices hit an all-time high in 2021, but growth is expected to slow in 2022 due to a number of economic factors. Here’s what’s driving the housing market and what it could mean for potential buyers and sellers. Photo: George Frey/Bloomberg News
The typical monthly mortgage payment in February was up 28% from a year ago, Mr. Yun said.
The median rate on 30-year fixed-rate mortgages was 4.16% as of Thursday, compared with 3.09% a year earlier, according to Freddie Mac. On Wednesday, the Federal Reserve decided to raise the federal funds benchmark rate for the first time since 2018, which is expected to push up mortgage rates.
The share of new buyers in the market fell to 29% in February compared to 31% a year earlier.
To compete in bidding, some buyers offer to buy houses without renovation or pay more than the appraised value of the house if the valuation is below the offer price. Others offer gifts to sellers, including concert tickets and free vacations, to make their bets stand out.
“Inventory shortages are really crushing first time homebuyers,” said Nora Aguirre, a Las Vegas real estate agent. “But you have to keep moving forward because the alternative for you is renting, which is also an extremely competitive market.”
Skylar Barsanti, 29, began looking for a home earlier this year in Boise, Idaho.
“We looked at everything and everywhere,” she said. “Finding anything under $400,000 in this area is crazy.”
Skylar Barsanti bought a home in Boise, Idaho for $385,000 in February. “I got there before interest rates went up,” she said.
Photo: Darien Smart
In February, she bought a two-bedroom house for $385,000. “I was very lucky,” she said. “I got in before interest rates went up.”
According to NAR, 870,000 homes were listed for sale at the end of February, up 2.4% from January and down 15.5% from February 2021. At the current rate of sales, there was a 1.7-month supply of homes on the market at the end of February.
“Demand is the same as last year, but it seems to be more because there are fewer houses,” says Risa Corson, a real estate agent from Kloster, New Jersey. “Now they don’t really have a choice. Either you buy this house, or you wait until another one comes along.”
A large number of cash buyers are crowding out mortgage buyers, she said.
According to NAR, about 25% of February existing home sales were purchased with cash, up from 22% a year earlier.
A typical home sold in February was on the market for 18 days, compared with 19 days the previous month, according to NAR.
“Zero leverage as a buyer. You have to beg them to accept your offer.”
— Justin Lopatin at Guaranteed Rate Lender
“The leverage of the buyer as a buyer is zero. You have to beg them to accept your offer,” said Justin Lopatin, senior vice president of mortgage lending at a guaranteed rate lender.
Existing home sales fell the most month-on-month in the Northeast, down 11.5%, and the Midwest, down 11.3%.
Construction activity picked up due to strong demand, but builders slowed down due to supply chain issues and labor shortages. New home construction, a measure of US home construction, rose 6.8% in February from January, the Commerce Department said this week. Residence permits, which could be a benchmark for future housing construction, fell 1.9%.
News Corp, the owner of the magazine, also operates Realtor.com under license from NAR.
Write to Nicole Friedman at [email protected]
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