Eye On Housing
Existing home sales, as reported by the National Association of Realtors (NAR), reversed a January gain and decreased 3.7% in February. At the current sales rate, the February unsold inventory represents a 3.8-month supply, compared to a 3.5-month supply in January. February existing sales were up 5.4% from the same month a year ago, and reached a seasonally adjusted rate of 5.48 million compared to 5.69 million in January. Total existing home sales include single-family homes, townhomes, condominiums and co-ops.
Existing sales increased 1.3% in the South, but declined by 3.1% in the West, 7.0% in the Midwest and 13.8% in the Northeast. Year-over-year, all regions advanced, ranging from 9.6% in the West to 1.5% in the Northeast.
Total housing inventory increased 4.2% in February, but remained 6.4% below the level a year ago, and has declined year-over-year for 21 consecutive months. Homes stayed on the market for 45 days in February, down from 50 days in January and 59 days during the same month a year ago. Some 42% of homes sold in February were on the market less than a month, compared to 38% of homes sold in January.
The February all-cash sales share increased to 27% from 23% in January and 25% this time a year ago. Individual investors purchased a 17% share in February, up from 15% in January, but down from 18% a year ago. Some 71% of investors paid cash in February, jumping from only 59% of investors in January. The first-time home buyer share dropped to 32% in February, down from 33% in January, but up from 30% a year ago.
The February median sales price jumped 7.7% from last year to $228,400, representing the 60th consecutive month of year-over-year increases. The February median condominium/co-op price of $216,100 was up 8.2% from the same month a year ago.
Pending sales declined last month, so the decrease in existing sales was not unexpected. NAR states that “low supply in the affordable price range continues to be the pest that’s pushing up price growth and pressuring the budgets of prospective buyers.” Trulia also cites the disproportional drop in the inventory of starter and trade-up homes as a headwind for existing sales. Builders continue to address the low inventory of homes as builder sentiment reached a cycle high. Both jobs and incomes are growing, suggesting an improving market for new single-family construction.
I believe that what we are seeing is buyer, anticipating higher interest rates, entered the market earlier than expected. If true, the unfortunate news is sales will likely be slower than normal in the normal spring rush months. I advise builders to consider buying a mortgage commitment to (1) protect your sales backlog, and (2) keep sales moving. Rather than a commitment for a finite rate, I recommend a rate cap commitment that sets the maximum rate your buyers will receive. For example, if your commitment sets a cap of 5% and interest rates are at 6% just prior to closing, the buyer would receive the 5% cap rate. On the other hand, if interest rates were at 4%, the buyer would receive that rate. It is an effective tool and far less expensive than a fixed rate commitment.