Houses in Centerville, Maryland, United States, on Tuesday, April 4, 2023.
Nathan Howard | bloomberg | Getty Images
Previously owned home sales fell 2.4% in March compared to February, according to a monthly report from the National Association of Realtors.
at a seasonally adjusted annual rate of 4.4 million units. Sales were 22% lower than in March last year.
The weakness is likely due to a sharp jump in mortgage interest rates. With home prices still historically high, today’s buyers are much more sensitive to daily movements in mortgage rates. The March sales are likely based on contracts signed in January and February, when prices were volatile.
The average 30-year fixed mortgage rate started in January at around 6.45%, and fell briefly to less than 6% by the end of the month, according to the Daily Mortgage News. But things turned sharply in March, with the rate jumping straight up to 6.45% in the first week of March and then continuing to rise to end the month at 6.85%.
“Home sales are trying to recover and are very sensitive to changes in mortgage rates,” said Lawrence Yoon, chief economist at NAR. “However, at the same time, multiple offers on entry-level homes are very common, which means more supply is needed to fully meet demand. It’s a unique housing market.”
Supply has increased slightly, but it’s still historically low. At the end of March, there were 980,000 homes for sale, up 1% from February and 5.4% from March 2022. At the current pace of sales, that’s only a 2.6-month supply. The six-month supply is a balanced market between buyer and seller.
Inventory is now down 41% from pre-pandemic levels in 2019. New listings are down 17% from March 2022. The reason for the higher supply is simply that homes stay on the market longer, on average 29 days compared to 17 a year since.
This tight supply is preventing home 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 over year. Still, it was the weakest reading since January 2012. Regionally, prices have increased everywhere but the West, where homes are most expensive.
This median price also indicates more homes are selling at the lower end of the market. Sales of homes over $1 million fell 29% from March 2022, but sales of homes between $250 and $500,000 fell 14% less.
“Affordability is not only an issue for first-time homebuyers, but also for many repeat buyers who still need to take out a mortgage,” said Danielle Hill, chief economist at Realtor.com, noting a recent home-listing site survey. It showed that 82% of potential sellers who needed to buy and sell felt “trapped” by the current low mortgage rate.
“This indicates that both supply and demand for existing housing will be sensitive to mortgage rate changes,” Hill added.
Cash continues to lead the market, with all cash transactions making up 27% of March sales, down slightly from 28% in February, but still above historical standards. Investors made up 17% of the buyers, down from last summer’s 25% stake. First-time buyers made up 28% of sales, down from 30% a year earlier. Historically, this share has been closer to 40%.
“Clearly, higher home prices and higher mortgage rates present challenges,” Yoon said of the first-time buyer stake.
