Mortgage Rates Were Volatile In March, Resulting In Lower Home Sales

A report from the National Association of Realtors shows that previously owned home sales decreased 2.4% in March compared to February.

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This amounts to 4.4 million units on an annualized basis, seasonally adjusted. There was a 22% drop in sales from March last year.

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Mortgage interest rates have jumped sharply, which may be responsible for the weakness. With home prices still historically high, buyers are more sensitive to the movement of interest rates even on a daily basis. As rates were volatile in January and February, the March sales likely reflected contracts signed then.

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By the end of January, Mortgage News Daily reported that the 30-year fixed mortgage average rate had dropped below 6%. As the rate jumped to 6.45% in the first week of March and then continued to rise to 6.85% by the end of the month, things changed dramatically.

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According to Lawrence Yun, chief economist for the National Association of Realtors, home sales are recovering and are highly sensitive to changes in mortgage rates. Nevertheless, multiple offers are quite common on starter homes, which implies more supply is needed to fully satisfy demand. It's an unusual housing market.”

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There were 980,000 homes for sale at the end of March, an increase of 1% from February and 5.4% from March 2022. Supply did increase a bit, but it is still historically low. In order for a market to be balanced, there must be a six-month supply of homes. At the current sales pace, that is only 2.6 months of supply.

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As a result of higher supply, homes are staying on the market longer, an average of 29 days instead of 17 days in 2015. The reason supply is higher is simply that homes are staying on the market for a long.

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In March, existing home prices dropped 0.9% from a year earlier to $375,700, the weakest read since January 2012. It is the tight supply that has prevented home prices from cooling quite as much as some had predicted. Prices rose across the nation but in the West, where homes are most expensive.

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Home sales at the upper end of the market are declining 29% in March, but sales between $250 and $500,000 declined only 14%, which indicates more homes are selling at the lower end of the market.

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Despite the fact that most repeat buyers need to take on a mortgage, affordability is not just an issue for first-time homebuyers, said Danielle Hale, chief economist for Realtor.com. In a recent survey conducted by the home listing site, 82% of potential sellers felt locked in by their current low mortgage rates, which locked them in.

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According to Hale, mortgage rate changes will affect both existing home supply and demand.

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There are still a lot of all-cash purchases on the market, with 27% of sales being made in cash in March. This is down from 28% in February, but still higher than historical trends. 17% of buyers were investors, down from 25% last summer. 28% of sales were made by first-time buyers, down from 30% last year. This share has historically been around 40%.

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On the first-time buyer share, Yun said high home prices and higher mortgage rates present challenges.

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