The roller coaster of existing-home transactions continued in February, with sales backtracking to a seasonally adjusted annual rate of 6.02 million units, according to the National Association of Realtors (NAR).
Sales were down 7.2% from the previous month and 2.4% from February 2021. Sales figures in previous months have been boosted by buyers trying to get ahead of rising mortgage interest rates, but with home prices still squarely on the uptick, it’s highly likely that many buyers’ struggles with declining affordability factored into the February dip.
“Housing affordability continues to be a major challenge, as buyers are getting a double whammy: rising mortgage rates and sustained price increases,” said Lawrence Yun, chief economist at NAR. “Some who had previously qualified at a 3% mortgage rate are no longer able to buy at the 4% rate.”
Mark Vitner, economist at Wells Fargo, cautioned against placing too much emphasis on increasing rates just yet.
“While it is tempting to blame rising mortgage rates for February’s larger-than-expected drop, the decline continues a recent pattern with annualized sales bouncing around from month to month,” Vitner wrote in commentary for Wells Fargo. “Mortgage rates have been rising since last fall, and concern about rising interest rates picked up after the FOMC (Federal Open Market Committee) signaled it would accelerate plans to normalize interest rates and begin to reverse the expansion of the Fed’s balance sheet.
“Those concerns likely caused some buyers to accelerate their timetable for purchasing a home, which is a point we raised with January’s surprisingly strong rise in home sales, so sales were poised for a drop.”
Yun noted that the market remains stiffly competitive, with most properties for sale still receiving multiple offers. Low supply continues to hold sales back, with total inventory at the end of February at 870,000 units, according to NAR. While that’s up 2.4% from January, it’s down 15.5% from one year ago and still hovers close to a historical low. Unsold inventory sits at a supply of 1.7 months at the current sales pace, up from 1.6 months — a record low — in January but down from 2 months in February of last year.
Prices continue to rise, with the median existing-home price for all housing types at $357,300 in February, up 15% year over year. Prices have now grown on an annualized basis for 120 straight months, adding to the longest-running streak ever recorded by NAR.
Yun said he expects the pace of appreciation to lose steam somewhat as demand moderates and home construction adds to supply. As for the impact of still-rising rates, Vitner acknowledged that “homebuyers have likely missed their opportunity to lock in an ultra-low [rate],” but observed that rates still remain historically low.
“The mortgage rate for a 30-year conventional mortgage has been higher than its current level for more than 90% of the time over the past 30 years,” Vitner said. “While that nugget does not make a home more affordable today than they were two months ago, it serves as an important reminder that home sales should remain fairly strong even if mortgage rates rise a bit further.”