The U.S. housing market hit a rough patch in February, as home resales fell 7.1 percent from January (a three month low) to an annual rate of 5.08 million, according to the National Association of Realtors.
Low inventories coupled with rising prices continue to stall the housing market, as sales of existing homes decreased in all four regions last month, falling 17.1 percent in the Northeast and 13.8 percent in the Midwest.
“The question is, is this the beginning where homebuyers are beginning to show resistance to higher prices or is this a one-month fluke in the data,” said NAR Chief Economist Lawrence Yun. “Now we are seeing fewer renters interested in buying. They’re indicating affordability is an issue.”
Following the introduction of new mortgage regulations in October, which were intended to help homebuyers understand their loan options, sales for existing U.S. homes has been vulnerable to extreme highs and lows.
According to Freddie Mac, the average rate on a 30-year fixed-rate mortgage is 3.73 percent, compared with a historic average of roughly six percent. However, affordability and limited selection of available properties continues to hinder first-time homebuyers and lower-income buyers. According to Trulia, inventory for both starter homes and trade-up homes is down about 40 percent in the last four years.
“The overall demand for buying is still solid entering the busy spring season, but home prices and rents outpacing wages and anxiety about the health of the economy are holding back a segment of would-be buyers,” said Yun. “Finding the right property at an affordable price is burdening many potential buyers.”
According to Bloomberg, the number of existing properties on the market fell 1.1 percent to 1.88 million in February from 1.9 million a year earlier. At the current pace, it would take 4.4 months to sell those houses compared with four months at the end of January.
“This number seems to suggest the trend may be a little weaker than we thought,” said David Sloan, Senior Economist at 4cast Inc. “Supply is fairly limited, so that is a restraint on sales.”
Economists forecasted that previously owned home sales would decrease 2.8 percent, but the slump could be a sign that demand for housing is cooling down. News of February’s housing decline didn’t bode well for investors either, as the S&P 500 stock index fell after the data was released.
“We assume the plunge in the stock market in the first six weeks of this year persuaded some potential homebuyers to reconsider, at least temporarily,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
However, the good news is that tight inventory levels have bumped the median price for a previously owned home up, increasing 4.4 percent from a year ago to $210,800. In addition, the median time a home was on the market decreased to 59 days from 64 days in January.
According to the National Association of Realtors, investors accounted for 18 percent of sales in February, with first-time buyers making up 30 percent of purchases.
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