U.S. existing-home sales dropped 2.7% monthly and 4.5% annually in March to a seasonally adjusted annual rate of 5.77 million, according to the National Association of Realtors (NAR).
Single-family sales fell by 2.7% while sales of condominiums and co-ops retreated by 3%. It’s the second straight month with a pullback in overall sales as conditions for homebuyers continue to tilt less favorably. Inventory levels remain low and price growth remains high while mortgage rates have risen rapidly, breaching 5% last week for the first time in more than a decade. Subsequently, demand has started to backtrack and the March numbers reflect this shift.
“The housing market is starting to feel the impact of sharply rising mortgage rates and higher inflation taking a hit on purchasing power,” said Lawrence Yun, NAR’s chief economist. “Still, homes are selling rapidly and home-price gains remain in the double digits.”
Indeed, February’s annualized sales rate still reads as a strong one despite market conditions. Consider, for example, Wells Fargo’s report that the 5.77 million-unit sales pace is still stronger than any seen from 2008 to 2019. And as Yun said, homes continue to come off the market quickly, with for-sale homes staying on the market for only 17 days in March, down from 18 days in the previous month.
Meanwhile, national home prices rose 15% year over year to reach $375,300 — a slightly smaller year-over-year gain than the 15.7% uptick in February. Still, March marked the 121st straight month of annual home-price increases, the longest streak ever recorded by NAR.
“Home prices have consistently moved upward as supply remains tight,” Yun said. “However, sellers should not expect the easy profit gains and should look for multiple offers to fade as demand continues to subside.”
The growth in financing costs is helping to drive the continued escalation of all-cash purchases, which accounted for 28% of March sales, the largest share since 2014. Individual investors, who make up many cash buyers, bought 18% of homes in March, down slightly from 19% in February but up from 15% in March 2021.
Interestingly (and somewhat counter to the growth in all-cash sales), Wells Fargo noted that some evidence correlates the recent cooling in home sales to softening demand for second homes. Redfin’s second-home demand index, for instance, decreased for the second consecutive month in March, dropping back to levels seen in May 2020.
Whatever the case, with rates expected to rise further, Yun anticipates that existing-home sales transactions will fall by 10% this year and that price growth will see some normalization. At the very least, the March sales pullback helped to improve supply a bit, with inventory up to 950,000 units in March. That’s still down 9.5% compared to one year ago but up 11.8% month over month.
At the present sales pace, unsold inventory is at a two-month supply, up from 1.7 months in February but down from 2.1 months in March 2021.