Sales of previously occupied U.S. homes fell in February as competition for near record numbers of properties on the market drove prices up and rising mortgage rates kept potential buyers away.
Sales of existing homes fell 7.2% last month from January to a seasonally adjusted annual rate of 6.02 million, the National Association of Realtors said Friday. That’s less than the roughly 6.1 million in sales that economists were expecting, according to FactSet.
Sales were down 2.4% from February 2021, with the median home price jumping 15% from the same time last year to $357,300.
Home prices are rising as potential buyers compete for relatively fewer available homes, even with a modest seasonal increase in properties on the market ahead of the spring home buying season.
“As a buyer, it is always difficult to enter the market with the lack of inventory,” said Lawrence Yun, chief economist of NAR.
The number of homes for sale at the end of February was just 870,000. That’s just 2.4% above the record low set in January on data dating back to 1999. The inventory of unsold homes fell by 15 .5% compared to February 2021.
At the current rate of sales, the low level of properties for sale equates to 1.7 months supply, the NAR said.
On average, homes sold 18 days after they went on the market last month. It was 19 days in January. In a more balanced market between buyers and sellers, homes generally remain on the market for 45 days.
A quarter of all homes sold last month were purchased with cash, up from 27% in January, NAR said. A year ago, they accounted for 22% of sales.
Property investors accounted for 19% of deals in February, down from 17% a year ago. First-time buyers, meanwhile, made up just 29% of all homes sold last month.
“Early buyers are struggling to enter the market,” Yun said.
Demand in the housing market appears to remain healthy this year, supported by ongoing demographic shifts as young millennials and gen Zs come of age and seek homeownership. But with a housing shortage long before the pandemic and interest rates now higher, the limits of what house hunters can afford will be limited, especially first-time buyers.
The average rate on the benchmark 30-year mortgage rose to 4.16% this week, topping 4% for the first time since May 2019, according to mortgage buyer Freddie Mac. A year ago, the average rate was 3.09%.
This increase in the cost of financing a home comes on top of the higher costs consumers are facing, with inflation at its highest level in decades.
Yun estimates that rising rates and escalating prices have pushed a monthly house payment up 28% from what it was a year ago.
Historically low mortgage rates last year helped give future homeowners buying power as prices soared. Home loan rates are expected to rise this year as the Federal Reserve takes steps to fight inflation. This week, the central bank raised its main short-term interest rate by a quarter of a point – which it had kept close to zero since the early days of the pandemic recession. The Fed also announced potentially up to seven additional rate hikes this year.