The spring homebuying season is encountering a sluggish beginning as potential buyers grapple with increased mortgage rates and escalating prices.
According to the National Association of Realtors, sales of existing U.S. homes dipped by 4.3% in March compared to the previous month, settling at a seasonally adjusted annual rate of 4.19 million units. This downturn marks the first monthly drop in sales since December, following a notable nearly 10% surge in February.
In addition, existing home sales experienced a 3.7% decline compared to March of the previous year. Nonetheless, the latest figures slightly surpassed economists’ expectations, with the sales pace slightly higher than the anticipated 4.16 million, as reported by FactSet.
Despite the downturn in sales, the national median home sales price rose by 4.8% year-over-year to reach $393,500. This figure marks the highest median sales price for any March on record since data collection began in 1999, marking the ninth consecutive month of year-over-year price increases.
The upward trajectory in prices reflects heightened competition among homebuyers, with 60% of homes sold in March being purchased within less than a month of being listed. Additionally, 29% of homes sold above their initial listing price, a slight increase from 28% in March of the previous year, according to Lawrence Yun, the NAR’s chief economist.
Yun highlighted the ongoing issue of limited inventory, stating, “Inventory is simply not there.”
While the supply of homes remains below historical averages, the typical seasonal increase in listings preceding the spring homebuying season provided buyers with a slightly wider selection.
At the end of March, there were 1.11 million unsold homes on the market, marking a 4.7% increase from February and a 14.4% rise from the previous year. However, this inventory level remains significantly lower than the 1.7 million homes available in March 2019, before the onset of the pandemic.
Despite the uptick in available homes, the current inventory translates to only a 3.2-month supply based on the current sales pace. This figure represents an increase from a 2.9-month supply in February and a 2.7-month supply in March of the previous year. A balanced market typically sees a 4- to 5-month supply.
The scarcity of homes on the market continues to give sellers an advantage, particularly in the lower price ranges where multiple offers are common.
The U.S. housing market is rebounding from a two-year sales downturn triggered by surging mortgage rates and a shortage of available homes. Despite a modest decrease in rates earlier this year, rates have mostly trended upward in February and March, potentially impacting sales finalized last month.
Economists anticipate a modest easing of mortgage rates this year, providing relief to buyers unable to purchase homes outright. However, most forecasts suggest that the average rate on a 30-year mortgage will remain above 6% by year’s end, contingent on inflation cooling sufficiently for the Federal Reserve to consider reducing its short-term interest rate.
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