Existing-Home Sales Fall as Inventory Remains a Challenge for Buyers

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The numbers: Existing-home sales fell in February, following two consecutive months of gains in the volume of homes sold.

Total existing-home sales dropped 6.6% from January to a seasonally-adjusted annual rate of 6.22 million, the National Association of Realtors reported Monday. Compared with a year ago, home sales were up 9.1%.

“Despite the drop in home sales for February — which I would attribute to historically-low inventory — the market is still outperforming pre-pandemic levels,” said Lawrence Yun, chief economist at the National Association of Realtors.

What happened: Regionally, home sales decreased the most in the Midwest (down 14.4% from January), followed by the Northeast (down 11.5%). Sales actually increased 4.6% in the West on a monthly basis. Compared to a year, sales were up in every region of the country.

The median existing-home price in February came in at $313,000, which is nearly 16% higher than a year ago. The inventory of homes for sale remained roughly even between January and February, but was down nearly 30% from a year ago. As of February, the market had 2-month supply of homes for sale based on the current sales pace, close to an all-time low. A 6-month supply is generally viewed as indicative of a balanced market.

The big picture: As with new-home construction, the disruptive winter weather in February caused a significant slowdown in home sales, economists noted. “While underlying demand factors remain strong for home sales, the winter storms from last month likely had a negative impact on transactions,” Nationwide senior economist Ben Ayers and economist Daniel Vielhaber said in a research note ahead of the existing-home sales report’s release.

While the weather events last month were a blip in the scheme of things, there are broader issues that could contribute to slower-than-expected sales activity in the months to come. To start, inventory remains a serious constraint on the housing market. A recent report from Realtor.com estimated that some 200,000 home sellers have stayed out of the market so far this year, constraining the options buyers have.

“Buyers are facing an ultra-competitive spring market, and prices continue to rise,” said Danielle Hale, chief economist at Realtor.com. And now that mortgage rates are on the rise, the question becomes whether buyers are willing to spend more to become homeowners or if they will wait on the sidelines.

What they’re saying: “The monthly repetition of record-low homes available for sale is another major constraint on turnover,” said Michael Gregory, deputy chief economist at BMO Capital Markets, in a research note.

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