Houses in Centreville, Maryland, U.S., on Tuesday, April 4, 2023.
Nathan Howard | Bloomberg | Getty Images
Pre-owned home sales in March fell 2.4% from February, according to a monthly report from the National Association of Realtors.
Seasonally adjusted, annualized that’s 4.4 million units. Sales were 22% lower than in March last year.
The weakness is likely due to a sharp rise in mortgage rates. With home prices still at historically high levels, today’s buyers are becoming increasingly sensitive to even daily movements in mortgage rates. March sales were likely based on deals signed in January and February when prices were volatile.
The average interest rate on the popular 30-year fixed-rate mortgage was around 6.45% at the start of January and briefly fell below 6% by the end of the month, according to Mortgage News Daily. But things took a sharp turn in March as the interest rate jumped right back up to 6.45% in the first week of March and then continued to climb to end the month at 6.85%.
“Home sales are trying to recover and are very sensitive to changes in mortgage rates,” said Lawrence Yun, NAR’s chief economist. “But at the same time, multiple offers for starter homes are quite common, meaning more supply is needed to fully meet demand. It is a unique housing market.”
While supply has increased slightly, it is still historically low. At the end of March, 980,000 homes were for sale, up 1% from February and 5.4% from March 2022. At the current pace of sales, this equates to just 2.6 months of supply. A six-month supply is considered a balanced market between buyer and seller.
Inventory is now 41% lower than before the pandemic in 2019. New listings were down 17% from March 2022. The reason for the higher supply is simply that homes stay on the market longer, an average of 29 days compared to 17 days a year.
This tight supply is keeping house prices from cooling as much as some had predicted. The median price of an existing home sold in March was $375,700, down 0.9% year-on-year. However, that is the weakest reading since January 2012. Regionally, prices rose everywhere except in the West, where houses are most expensive.
This median price also indicates that more homes are being sold at the lower end of the market. Sales of homes priced over $1 million were down 29% from March 2022, but sales of homes priced between $250 and $500,000 were down less than 14%.
“Affordability is not only an issue for first-time home buyers, but also for many repeat buyers who have yet to get a mortgage,” said Danielle Hale, chief economist at Realtor.com, noting that a recent home listing site survey showed that 82% of prospective sellers who had to sell and buy felt “locked in” by their existing low mortgage rate.
“This suggests that both home supply and demand will be sensitive to changes in mortgage rates,” Hale added.
Cash continues to be the king of the market, with cash transactions accounting for 27% of March sales, down slightly from February’s 28% but still ahead of historical averages. Investors made up 17% of buyers, down from last summer’s 25% share. First-time buyers accounted for 28% of sales, up from 30% a year earlier. Historically, that percentage is closer to 40%.
“High home prices and higher mortgage rates are clearly challenges,” Yun said of first-time buyer stock.