Source: Thompson Reuters
US home sales fell more than expected in March as rising demand stoked by declining mortgage rates and slowing house price inflation continued to be frustrated by a lack of properties, especially in the lower-priced segment of the market.
The report from the National Association of Realtors (NAR) on Monday could temper expectations of a strong spring selling season that had been bolstered by a recent surge in applications for loans to buy homes. The housing market continues to buck the broader economy, which has shown signs of gaining momentum after stumbling at the turn of the year.
“Given mortgage rates have dropped and home prices aren’t appreciating as quickly, there is more opportunity for home shoppers, who are gearing up for the spring season,” said Robert Frick, corporate economist at Navy Federal Credit Union in Vienna, Virginia. “The major problem for home buyers is the low supply of homes, especially at the lower end of the market.”
Existing home sales dropped 4.9% to a seasonally adjusted annual rate of 5.21-M units last month. February’s sales pace was revised down to 5.48-M units from the previously reported 5.51-M units. Sales fell in all four regions of the country last month.
Economists polled by Reuters had forecast existing home sales would fall 3.8% to a rate of 5.30-M units last month. Existing home sales, which make up about 90% of US home sales, declined 5.4% from a year ago. That was the 13th straight Y-Y decrease in home sales.
Economists expect housing probably remained a drag on gross domestic product in the first quarter. Residential investment contracted in Y 2018, logging its weakest performance since Y 2010.
While lower borrowing costs and house prices as well as strengthening wage growth have improved affordability, land and labor shortages are making it difficult for builders to ramp up construction of relatively cheaper priced homes.
The 30-year fixed mortgage rate has dropped from a peak of about 4.94% in November to around 4.12%, according to data from mortgage finance agency Freddie Mac. Applications for loans to purchase a home jumped to an almost nine-year high in the week ending 12 April.
A survey last week showed that while builders reported strong demand for new homes in April, they also complained about “affordability concerns stemming from a chronic shortage of construction workers and buildable lots.”
The PHLX housing index fell more than 1.0% Monday, underperforming a broadly flat US stock market. The USD slipped Vs a basket of peer currencies. Prices of US Treasuries fell.
There were steep declines in sales in the lower and upper ends of the market last month. The NAR said last year’s revamp of the US tax code, which reduced the amount of mortgage interest payments homeowners could deduct, was hurting sales of homes priced $1-M and above.
The supply of previously owned homes on the market rose to 1.68-M last month from 1.63-M in February and 1.64-M a year ago. At March’s sales pace, it would take 3.9 months to exhaust the current inventory, up from 3.6 months in February.
A 6 to 7-month supply is viewed as a healthy balance between supply and demand. The median existing house price increased 3.8% from a year ago to $259,400 in March.
The Commerce Department reported last Friday that housing starts dropped to a rate of 1.139 million units in March, the lowest level since May 2017.
That was the 2nd straight monthly fall in homebuilding and pushed starts below the 1.5 to 1.6-M units per month range that realtors estimate is needed to alleviate the shortage.
Houses for sale typically stayed on the market for 36 days in March, down from 44 days in February, but up from 30 days a year ago. About 47% of homes sold in March were on the market for less than a month.
1st-time buyers accounted for 33% of sales last month, little changed from February and up from 30% a year ago.
Economists and realtors say a 40% share of 1st-time buyers is needed for a robust housing market.
Paul Ebeling, Editor