The real estate market decelerated in February, more than expected.
Sales of existing homes plunged 6.6% to 6.22 million seasonally adjusted in February compared to the previous month, according to the National Association of Realtors (NAR). Existing home sales in January were revised slightly to 6.66 million, from 6.69 million. The drop far outweighed the expected drop of 2.8%, according to Bloomberg consensus estimates.
“Despite the drop in home sales in February – which I attribute to historically low inventory – the market is still exceeding pre-pandemic levels,” said Lawrence Yun, chief economist at NAR.
Despite the drop, the NAR noted that sales rose 9.1% last month from February 2020, which was before the COVID-19 pandemic sweeped the US. In addition, sales of existing homes are already above the total sales figure for the entire year 2020, which was 5.6 million units, Yun said.
“The way forward looks promising. After gradually receding to start the year, signs of buyer activity – especially the level of mortgage orders – have recovered in recent weeks, suggesting that many home buyers are taking a leap in what they promise be a busy spring season, “Zillow economist Matthew Speakman said in a press release after the results. “Furthermore, improvements in the economy and the continued distribution of the COVID-19 vaccine should encourage more homeowners to place their homes on the market.”
The number of homes for sale, also known as inventory, fell to a record low of 1.03 million units, the same as in January. This was 29.5% below the previous year. You typically see an increase in inventory in January and February, but that did not happen this year, according to Yun.
The average price of an existing home in February was $ 313,000, an increase of 15.8% over February 2020, as prices have risen in all regions. The jump in the national price in February marks 108 consecutive months of annual gains.
“It is a dramatic drop, which is why the price is rising, the demand is very strong and is reflected in days in the market,” said Yun during a news conference announcing the results.
Properties typically stayed on the market for 20 days in February, compared to 21 days in January and 36 days in February 2020 – the fastest pace since NAR began monitoring how many days units remain on the market. Seventy-four percent of the homes sold in February 2021 had been on the market for less than a month.
“Even with this decline, sales would still be well above the pre-pandemic execution rate,” Credit Suisse wrote in a note before the results. “Sales of existing homes have recently outperformed the negative signs in the pending home sales data, which have fallen 5.7% since August 2020, but we expect the two series to converge. The sentiment of construction companies, reflecting the prospects of the real estate market on the supply side, also decreased slightly in recent months. “
Yun warned that “in the coming months, demand may decline” somewhat as mortgage rates rise. February’s results do not reflect rates already up, as all sales represent deals that were signed in January before rates started to rise. Earlier this month, interest rates for a 30-year fixed mortgage, Yun predicts that the 30-year fixed mortgage rate will reach 3.5% in December, which is “why we need more offer”.
Amanda Fung is an editor at Yahoo Finance.
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