The spring home buying season in the U.S. started slowly as mortgage rates rose and home prices increased. Existing home sales dropped 4.3% in March, the first decline since December, but slightly exceeded analysts' expectations at 4.16 million. Lawrence Yun, NAR's chief economist, attributed the stagnation to stable rates and limited inventory growth. While 60% of March home sales closed within a month of listing and 29% sold above asking price, inventory remains constrained. By month-end, there were 1.11 million unsold homes on the market, down 14.4% year-over-year. Economists anticipate a slight rate decline through 2022, which may boost affordability and reinvigorate the market.
The spring home buying season got off to a slow start due to higher mortgage rates and rising home prices. According to the National Association of Realtors (NAR), existing home sales dropped 4.3% in March compared to the previous month, marking the first monthly decline since December. This followed a nearly 10% jump in sales in February.
Sales also fell 3.7% year-over-year. However, at a pace of 4.16 million, sales were slightly above analysts' expectations. In recent weeks, mortgage rates climbed to their highest level since late November.
NAR chief economist Lawrence Yun said home sales have stagnated due to stable rates and limited housing inventory growth. 60% of March home sales closed within a month of listing, and 29% sold above the asking price - slightly up from 28% last March.
However, inventory remains constrained. By month-end, there were 1.11 million unsold homes on the market, up 4.7% from February but down 14.4% year-over-year. This remains well below the 1.7 million pre-pandemic level in March 2019.
The 2.9-month supply in February rose slightly to 3.7 months in March, still short of the 4-5 month balanced market level. The U.S. housing recovery has faced a two-year sales slump due to spiking rates and inventory shortfalls. Rates peaked at 7.79% in late 2018.
While rates dipped to 6.67% in mid-January, they have risen steadily to over 7.1% currently. Bond markets and the 10-year Treasury yield, a reference for mortgages, influence rates. Last week, the 10-year yield surged to 4.66% on Fed signals of steady rates to curb inflation.
Still, economists expect a slight rate decline through 2022, boosting affordability. Yun forecasts rates climbing to 7.5% but stabilizing at 6.5% by year-end. First-time buyers, at 26% of sales, remain below the historical 40% average. Cash purchases fell to 28% from 33% in February but rose from 27% last March.
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