As interest rates accelerate, the number of home sales drops amid climbing prices and lessening supply.

Higher Costs of Homeownership Put Off Some Buyers in March

The National Association of REALTORS® (NAR) reported that its existing-home sales index (reflecting closed transactions for single-family homes, condos, townhomes and co-ops) declined -2.7% m/m in March and -4.5% y/y.

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“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.”

Interest Rates Upwards of +5% Last Week

The popular 30-year fixed-rate mortgage reached an average of +5% last week, the highest rate in more than a decade, according to Freddie Mac.  NAR’s data indicates that mortgage rates have jumped between 1.8 -2 percentage points since the beginning of 2022 adding between $400 – $500 to an average monthly mortgage payment on a median-priced home between $375,000 – $400,000.

The Federal Reserve has announced it will raise mortgage interest rates another six times this year in hopes of slowing inflation.  Such increased interest rates will, according to Yun, dampen home sales by -10% in 2022.  Yun also believes that home prices will readjust (lower listing prices) and that gains will come in at approximately +5% by the end of this year.

Key Indicators of NAR’s March Home Sales Report

  1. Home Prices:  The median price of existing homes (all housing types) in March was $375,300, an increase of +15% y/y.  Home prices increased in every region of the country.  Yun warned sellers to “…not expect the easy-profit gains and should look for multiple offers to fade as demand continues to subside.”
  2. Days on Market: Most properties remained on the market for 17 days in March.  87% of for-sale homes sold in less than one month.
  3. Inventory: Total inventory was 950,000 units at the end of March, +11.8% m/m yet down nearly -10% y/y.
  4. First-Time Buyers: The market share of home purchased by first-time buyers was 30% in March, down from 32% in 2021.  Yun said, “It appears first-time buyers are still looking to lock in at current mortgage rates before they inevitably increase.”
  5. Investors & Second-Home Buyers: These two cohorts purchased 18% of homes in March, up from 15% last year.  Because these two types of buyers often make up the bulk of all-cash sales, all-cash closed transactions represented 28% of home sales in March, the highest share of all-cash sales in approximately eight years.
  6. Distressed Sales: Foreclosures and short sales accounted for less than 1% of all home sales in March.

Regional Sales Breakdown in March

  • Northeast: Existing-home sales declined -2.9% in March. Sales dropped -11.8% y/y.  The median price was $390,200, an increase of +6.8% y/y.
  • Midwest: Sales dropped -4.5% m/m and -3.1% y/y. The median price was $271,000, an increase of +10.4% y/y.
  • South: Existing-home sales fell -3% m/m and -3% y/y. The median home price was $339,000, an increase of +21.2% y/y.
  • West: Existing sales were flat m/m yet dropped -4.7% y/y.  The median home price was $519,900, an increase of +5.4% y/y.

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Thanks to the National Association of REALTORS®.

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