WASHINGTON (Reuters) – U.S. home sales fell more than expected in February as rising mortgage rates and a perennial shortage of houses priced out first-time buyers from the market.
Existing home sales dropped 7.2% to a seasonally adjusted annual rate of 6.02 million units last month, the National Association of Realtors said on Friday. Though the decline reversed January’s jump, sales remained above their pre-pandemic level. Economists polled by Reuters had forecast sales decreasing to a rate of 6.10 million units.
Sales fell in all four regions. Home resales account for the bulk of U.S. home sales. They declined 2.4% on a year-on-year basis in February.
Mortgage rates surged in February, with the 30-year fixed rate approaching a three-year high, according to data from mortgage finance agency Freddie Mac. It averaged 4.16% last week, rising above 4.0% for the first time since May 2019.
Mortgage rates are set to increase further after the Federal Reserve on Wednesday raised its policy interest rate by 25 basis points, the first hike in more than three years, and laid out an aggressive plan to push borrowing costs to restrictive levels by 2023.
Higher mortgage rates and rising homes prices amid a prolonged housing shortage will reduce affordability, especially for first-time buyers. Data from the Commerce Department on Thursday showed the backlog of homes yet to be build reached a fresh record high in February.
A National Association of Home Builders survey this week showed homebuilders confidence dropped to a six-month low in March as shortages and higher prices for lumber persisted.
Bank of America Securities expects strong house price growth will continue this year and into 2023 because of tight supply.
According to the NAR, the median existing house price increased 15% from a year earlier to $357,300 in February. Sales remained concentrated in the upper-price end on the market.
The NAR said the typical monthly mortgage payment had surged 28% from a year ago, a huge burden for first-time buyers, who accounted for only 29% of sales last month. Economists and realtors say a 40% share of first-time buyers is needed for a robust housing market. There were 870,000 previously owned homes on the market in February, down 15.5% from a year ago.
At February’s sales pace, it would take 1.7 months to exhaust the current inventory, down from 2.0 months a year ago. A six-to-seven-month supply is viewed as a healthy balance between supply and demand.
(Reporting by Lucia Mutikani; Editing by Dan Burns)
