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Affordability, inventory impacting homes market

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Existing-home sales declined in February, following two months of gains, according to the National Association of Realtors. Month-over-month, only one major region saw an increase in February, but all four U.S. regions recorded year-over-year gains.

Total existing-home sales decreased 6.6 percent from January to a seasonally-adjusted annual rate of 6.22 million in February.

“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, NAR’s chief economist, in parsing the data.

(While sales declined month-over-month, they were up year-over-year, climbing 9.1 percent from the 5.7 million annualized rate reported a year before.)

Headwinds, and not just the inventory crunch, may be on the way in coming months, Yun warned. He pointed to prices continuing to outpace wage growth, something that will be doubly problematic as mortgage-interest rates rise.

“I still expect this year’s sales to be ahead of last year’s, and with more COVID-19 vaccinations being distributed and available to larger shares of the population, the nation is on the cusp of returning to a sense of normalcy,” Yun said. “Many Americans have been saving money, and there’s a strong possibility that once the country fully reopens, those reserves will be unleashed on the economy.”

The median existing-home price for all housing types in February was $313,000, up 15.8 percent from $270,4000 in February 2020 ($270,400), as prices rose in every region. February’s national price jump marks 108 straight months of year-over-year gains.

And that’s something of a problem for the market as a whole.

“Home affordability is weakening,” Yun said. “Various stimulus packages are expected and they will indeed help, but an increase in inventory is the best way to address surging home costs.”

According to Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage was 2.81 percent in February, up from 2.74 percent in January.

The average commitment rate across all of 2020 was 3.11 percent – remarkably advantageous for buyers.

Total housing inventory at the end of February amounted to 1.03 million units, equal to January’s inventory but down 29.5 percent from a year before. Unsold inventory sits at a two-month supply at the current sales pace, slightly up from January’s 1.9-month supply and down from the 3.1-month amount recorded in February 2020.

First-time buyers were responsible for 31 percent of sales in February, down slightly but in line with recent norms.

Individual investors or second-home buyers, who account for many cash sales, purchased 17 percent of homes in February, up from 15 percent in January and equal to the percentage from February 2020. All-cash sales accounted for 22 percent of transactions in February, up from both 19 percent in January and from 20 percent in February 2020.

Distressed sales – foreclosures and short sales – represented less than 1 percent of sales in February, equal to January’s percentage and down from 2 percent in February 2020.

Regionally, compared to one year ago:

• Existing-home sales in the Northeast rose 13.2 percent compared to a year before, standing at 770,000. The median price in the Northeast was $356,000, up 20.5 percent from February 2020.

• Existing-home sales in the Midwest rose 2.3 percent to an annual rate of 1,310,000 The median price in the Midwest was $231,800, a 14.2-percent climb from February 2020.

• Existing-home sales in the South were up 9.9 percent to an annual rate of 2,770,000. The median price in the South was $271,200, up 13.6 percent from a year before.

• Existing-home sales in the West rose 12.3 percent from a year ago to 1,370,000, and the region was the only one of the four to see a month-over-month increase (up 4.6 percent). The median sales price of $493,3000 was up 20.6 percent.

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