The spring housing market is off to a sluggish start, affected by rising mortgage rates and growing apprehension regarding the overall economic landscape.
According to the National Association of Realtors, sales of previously owned homes dropped 5.9% in March compared to February, totaling 4.02 million units on a seasonally adjusted annualized basis. This figure also represents a 2.4% decline from March of the previous year.
Sales experienced a downturn across all regions, with the most significant losses occurring in the western United States, where sales plummeted by more than 9%. This region remains the most expensive in the nation; however, it did report a year-over-year increase owing to robust activity in the Rocky Mountain states, buoyed by strong job growth.
The data reflects sales based on closings, which were likely attributed to contracts formalized in January and February when the average rate on the widely used 30-year fixed mortgage had surpassed 7%. Rates did not dip below this threshold until February 20, as reported by Mortgage News Daily.
“Home buying and selling remain tepid in March, primarily due to the affordability challenges linked to elevated mortgage rates,” said Lawrence Yun, NAR’s chief economist. “With residential housing mobility currently at historic lows, we are faced with the concerning prospect of decreased economic mobility for our society.”
Despite an uptick in available listings, sales continued to decline. At the end of March, there were 1.33 million homes on the market, marking an almost 20% increase from the previous year. At the current sales speed, this translates to a four-month supply of homes, still falling short of the six-month supply typically considered balanced for buyers and sellers.
The combination of increased inventory and slower sales is beginning to dampen home prices. The median sale price for existing homes in March reached $403,700. While this remains an all-time high for the month, it represents only a 2.7% increase compared to March of last year. This annual growth has been declining since December and reflects the smallest increase since August.
“Unlike the stock and bond markets, household wealth in residential real estate continues to soar,” Yun stated. “With residential real estate assets valued at $52 trillion, per the Federal Reserve Flow of Funds, each percentage point rise in home prices contributes over $500 billion to household balance sheets.”
First-time homebuyers constituted 32% of the market in March, consistent with the same month last year, yet historically they account for about 40% of sales. Additionally, all-cash transactions decreased to 26% from 28% the prior year, while investor participation remained steady at 15% of total sales.
