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In February, 7.2 percent fewer previously owned homes sold than in the month before and 2.4 percent fewer than a year earlier, the National Association of Realtors (NAR) reported.
The seasonally adjusted total of 6.02 million homes fell short of the 6.13 million sales and 5.7-percent decline economists surveyed by The Wall Street Journal had predicted.
Sales plummeted 26 percent for houses priced from $100,000 to $250,000, while homes priced from $750,00 to $1 million leaped 24 percent. Sales of houses costing more than a million shot up 21 percent.
First-time buyers made up 29 percent of February’s buyers, slightly more than in January but still far below the historical average of 40 percent. Investors—buyers not intending to live in the homes they purchased—accounted for 19 percent of February sales.
“The shortage in inventory is just crushing the first-time home buyer,” Las Vegas real estate agent Nora Aguirre told the WSJ, “but the alternative is to rent, which is also an extremely competitive market.”
The home sales count is based on closings, meaning the homes sold went under contract in December and January.
In December, mortgage interest rates still were near record lows, averaging about 3.25 percent for a 30-year, fixed-rate loan. Rates began rising in January and ended the month at 3.68 percent, likely cutting into sales, the NAR said.
As of 17 March, mortgage loans were averaging 4.16 percent, according to the NAR, compared to 3.09 percent a year earlier.
“It will be interesting to observe what’s going to happen in the coming months as mortgage rates make a much more meaningful jump,” NAR chief economist Lawrence Yun said in a statement announcing February’s results.
“As a buyer, it is still a struggle to get into the market,” he added.
Perhaps more important than rising interest rates, houses are in short supply.
The buying frenzy that marked 2021 has largely cleared out the most desirable homes for sale and most of the eager buyers who could qualify for a mortgage.
There were 870,000 homes for sale at the end of February, 15 percent fewer than a year before and about a 1.7-month supply, close to a record low.
Unrelenting demand and the shortage of homes pushed the median selling price of existing homes to $357,300, 15 percent higher than a year previous.
Realtor.com reported the average February listing price of homes reached a record $392,000.
About a quarter of homes sold in February were sold for cash, compared to 22 percent a year earlier, according to NAR figures.
Cash purchases put an additional barrier in front of potential buyers that must secure a mortgage.
Homes were selling in an average of 18 days, with 68.6 percent sparking bidding wars, according to Redfin, the online brokerage, the highest percentage since Redfin started tracking the figure in April 2020.
“Bidding wars intensified this year after rates started spiking, which lit a fire under buyers,” Redfin chief economist Daryl Fairweather said to the WSJ.
As a result of higher mortgage rates and record-level home prices, buyers’ monthly payments are averaging 28 percent more than a year ago, according to NAR figures.
“Monthly mortgage payments for new buyers already are at a record high,” Fairweather noted. “So far, buyer activity has been resilient to the extra costs of home ownership, but as they continue to creep up, some buyers will move to the sidelines.”
“Demand will be tested by an extraordinary year,” he predicted.
TREND FORECAST: We have said many times, in articles such as “Home Sales Fall as Inventory Dries Up, Prices Climb” (25 May, 2021), “U.S. Home Sales, Price Rose Again in September” (26 Oct 2021), and “Middle-Income Buyers Too Poor to Buy Homes” (22 Feb 2022) that the surging U.S. home market is shutting out first-time buyers and creating at least one generation that will be denied the opportunity to create wealth by building equity through home ownership.
A significant share of the wealth that is being built is accruing to private equity firms, which swept into the housing market in 2020, buying thousands of houses in the most competitive real estate markets.
The firms are buying the houses, often for cash, to rent out at premium prices now that more people are forced to rent after being shut out of the housing market.
We have documented private equity firms’ commandeering of the U.S. housing market in such articles as:
- “Blackstone Extends Reach Into Housing Market” (29 Jun 2021)
- “Residential Rental Rates Skyrocketing” (10 Aug 2021)
- “Rents Soar as Investors Buy Properties and Raise Rates” (14 Sep 2021)
- “Investors Now Targeting Off-Campus Student Housing” (14 Sep 2021)
- “Rents Soaring. What’s Next?” (21 Sep 2021)
- “Single-Family Rental Homes: Investments Galore” (16 Nov 2021)
- “Home Sales Up as Money Gang Gobbles Up Houses” (23 Nov 2021)
- “Rents on the Rise” (11 Jan 2022)