By Lucia Mutikani
WASHINGTON (Reuters) – U.S. home sales fell to their lowest level in nearly two years in March as house prices hit a record high, and could fall further with mortgage rates reaching 5%.
Wednesday’s National Association of Realtors report also showed that February’s sales decline was much steeper than initially thought.
Even as home sales return to pre-pandemic levels, the housing market remains hot. Homes sold in March generally only stayed on the market for 17 days and the share of all cash sales was the highest in eight years.
“To have the best chance of success, homebuyers should have cash offers ready and they should lock in mortgage rates because they are expected to continue to rise,” said Robert Frick, business economist at Navy Federal Credit. Union in Vienna, Virginia.
Existing home sales fell 2.7% to a seasonally adjusted annual rate of 5.77 million units last month, the lowest level since June 2020. Data for February was revised down to a rate of 5.93 million units compared to the previously reported 6.02 million units.
GRAPHIC: US Home Sales Cool – https://graphics.reuters.com/USA-ECONOMY/zjpqkmkgwpx/chart_eikon.jpg
The March sales mainly reflected the conclusion of contracts signed two or three months ago when the 30-year fixed mortgage rate was below 4%. Economists polled by Reuters had forecast sales would decline at a rate of 5.80 million units. Sales fell in the Northeast, South and Midwest. They were unchanged in the West.
Home resales account for the bulk of home sales in the United States. They were down 4.5% year on year in March.
The 30-year fixed-rate mortgage averaged 5.0% in the week ended April 14, the highest since February 2011 and up from 4.72% the previous week, the data showed. of the Freddie Mac mortgage financing agency.
In March, the Federal Reserve raised its key rate by 25 basis points, the first rate hike in more than three years, as the US central bank battles soaring inflation. Economists expect the Fed to raise rates by 50 basis points next month and soon begin trimming its asset portfolio.
GRAPH: Year-over-year mortgage demand growth https://graphics.Reuters.com/USA-STOCKS/zdpxogowjvx/mba.png
The housing market is the sector of the economy most sensitive to interest rates. But with inventories still low, economists believe higher borrowing costs will have a moderate impact on demand.
While single-family home construction and permits fell in March, both remained at elevated levels. The stock of single-family homes under construction was the highest since November 2006, government data showed on Tuesday.
Yet owning a home is becoming unaffordable for many Americans. The median price of existing homes jumped 15% from a year earlier to an all-time high of $375,300 in March. Sales remained focused on the higher price segment of the market.
GRAPH: Home sales are down, but prices are at an all-time high – https://graphics.Reuters.com/USA-ECONOMY/gdpzyayeevw/chart_eikon.jpg
The South, which has seen an increase in migration from other parts of the country, saw strong price gains.
There were 950,000 previously owned homes on the market in March, up 11.8% from February but down 9.5% from a year ago.
At the pace of March sales, it would take 2.0 months to deplete current inventory, compared to 2.1 months a year ago. A six to seven month supply is considered a healthy balance between supply and demand.
GRAPHIC: Near record number of homes are for sale – https://graphics.Reuters.com/USA-ECONOMY/lgpdwgwbmvo/chart_eikon.jpg
Properties generally remained on the market for 17 days last month, compared to 18 days a year ago. Eighty-seven percent of homes sold last month had been on the market for less than a month.
First-time buyers accounted for 30% of sales last month, down from 29% in February and 32% a year ago. Economists and real estate agents say a 40% share of first-time buyers is needed for a robust housing market.
Cash sales accounted for 28% of transactions in March, the most since July 2014. This was up from 25% in February and 23% in March 2021. Individual investors or second home buyers, who account for many cash sales, bought 18% of homes in March, compared to 15% a year ago.
(Reporting by Lucia Mutikani; Editing by Paul Simao and Andrea Ricci)