On March 14, 2022, a For Sale sign will be displayed in front of a home in Washington DC.

Stefani Reynolds | AFP | Getty Images

According to the National Association of Realtors, sales of previously owned homes declined 7.2% month-over-month in February to a seasonally adjusted annualized rate of 6.02 million units.

That significantly missed analyst expectations of 6.13 million units. Turnover was 2.4% lower than in the same month a year ago. Rising mortgage rates probably played a role in the disappointing figures.

The sales count is based on closures, meaning the homes likely went under sales contract in December and January. This is important to note as mortgage rates were relatively low in December, with the average interest rate on the popular 30-year fixed loan at around 3.25%, according to Mortgage News Daily. But that percentage started to climb steadily in January, reaching 3.68% by the end of the month. The rate is now significantly higher at 4.5%.

“It will be very interesting to see what happens in the coming months as mortgage rates take a much more meaningful jump,” said Lawrence Yun, chief economist for the Realtors.

While some sales figures were likely impacted by rising rates, the biggest problem in housing today is very low supply. More homes came on the market in February than in January, but at the end of the month there were only 870,000 homes for sale, a decline of 15.5% year-on-year. At the current rate of sales, that equates to a 1.7-month supply, which is close to an all-time low.

The tight supply and strong demand continued to push prices up. The median price for an existing home sold in February was $357,300, up 15% from a year ago.

That price is somewhat skewed by the mix of homes currently for sale and the price range where sales are most common. The supply is smallest at the bottom of the market. Sales of homes priced between $100,000 and $250,000 were down 26% year over year. Sales of homes priced between $750,000 and $1 million were up 24%. Sales of homes over $1 million were up 21%.

Competition for the limited supply of homes for sale is becoming increasingly fierce. Houses go into contract in just 18 days. Nationwide, 68.6% of Redfin agents’ home listings have experienced bidding wars, according to a new season-adjusted report from the brokerage. That was the highest level since Redfin started counting in April 2020.

“Bidding wars intensified this year after rates began to rise, fueling a fire among buyers. Competition is likely to stabilize or even decrease if rates continue to rise as expected,” said Daryl Fairweather, chief economist at Redfin. “Monthly mortgage payments for new buyers are already at an all-time high. As they continue to rise, some buyers will be sidelined.”

Fixed home buyers face strong competition from investors. Investors’ share of revenue in February was 19%.

First-time buyers, who are generally looking for homes at the lower end of the market, made up 29%, up slightly from January but well below the historic average of about 40%. At today’s mortgage rates and higher home prices, buyers today pay 28% more in a monthly payment than they would have paid for the same home a year ago.

“Our expectation is that home sales will remain relatively high in 2022 as homebuyers get creative about how to spend their housing budget amid rising prices of competitive expenditures such as energy, food and childcare, driven by inflation,” said Danielle Hale, principal. economist at Realtor.com. “So far, buyer activity has been able to withstand the added cost of home ownership, but demand will be put to the test in an extraordinary year.”

This post Home sales in February fall much more than expected as mortgage rates rise

was original published at “https://www.cnbc.com/2022/03/18/february-home-sales-fall-far-more-than-expected-as-mortgage-rates-rise.html”