Inventory shortages, affordability concerns crush existing-home sales
And isn't expected to get better
The latest existing-home sales report confirms how barren the market is as almost every sector of housing continues to suffer from the impact of barely any inventory.
Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, tumbled 7.1% to a seasonally adjusted annual rate of 5.08 million in February from 5.47 million in January. Despite last month's large decline, sales are still 2.2% higher than a year ago, the National Association of Realtors report stated.
Lawrence Yun, chief economist for the real estate agent trade group, said existing sales disappointed in February and failed to keep pace with what had been a strong start to the year.
"Sales took a considerable step back in most of the country last month, and especially in the Northeast and Midwest," he said. "The lull in contract signings in January from the large East Coast blizzard, along with the slump in the stock market, may have played a role in February's lack of closings.”
“However, the main issue continues to be a supply and affordability problem. Finding the right property at an affordable price is burdening many potential buyers," Yun said.
Although the previous January existing-home sales report was hampered by a lack of housing supply, existing-home sales still surged to the highest annual rate in six month.
The month before that also jumped since the delayed closings due to TRID pushed a portion of November's would-be transactions into December’ figure.
Total housing inventory at the end of February grew 3.3% to 1.88 million existing homes available for sale, but is still 1.1% lower than a year ago (1.90 million). Unsold inventory is at a 4.4-month supply at the current sales pace, up from 4.0 months in January.
Ten-X, an online real estate marketplace, projections showed that existing home sales for February would fall between seasonally adjusted annual rates of 5.23 to 5.58 million annual sales, with a targeted number of 5.4 million.
"Constrained inventory will continue to limit the recovery of the housing market, and it doesn't seem likely that we're going to see a surge in the number of homes for sale as the spring home buying season approaches," Ten-X Executive Vice President Rick Sharga said about the forecast. "As demand appears to be growing, especially in certain geographies, prices are likely to rise, impacting affordability, and leaving homeownership just out of reach for many would-be buyers."
Broken up regionally, February existing-home sales plummeted the most in the Northeast and Midwest.
In the Northeast, sales dropped 17.1% to an annual rate of 630,000, but are still 5% above a year ago. The median price in the Northeast was $239,700, which slight down 0.8% from February 2015.
In the Midwest, existing-home sales sank 13.8% to an annual rate of 1.12 million in February, unchanged from February 2015. The median price in the Midwest was $162,700, up 6.3% from a year ago.
Meanwhile, existing-home sales in the South decreased 1.8% to an annual rate of 2.20 million in February, but are still 3.3% above February 2015. The median price in the South was $186,400, up 5% from a year ago.
Existing-home sales in the West dipped 3.4% to an annual rate of 1.13 million in February, but are still 0.9% higher than a year ago. The median price in the West was $308,800, which is 7% above February 2015.
The median existing-home price for all housing types in February slightly increased to $210,800, up 4.4% from February 2015 ($201,900). This marks the 48th consecutive month of year-over-year gains.
The share of first-time buyers fell to 30% in February (matching the lowest share since November 2015) from 32% in January, but is up from 29% a year ago. First-time buyers in all of 2015 represented an average of 30%.
All-cash sales marginally decreased, making up 25% of transactions in February, down from 26% both in January and a year ago. Individual investors, who account for many cash sales, purchased 18% of homes in February (17% in January), matching the highest share since April 2014. Sixty-four percent of investors paid cash in February.
"Investor sales have trended surprisingly higher in recent months after falling to as low as 12% of sales in August 2015," adds Yun. "Now that there are fewer distressed homes available, it appears there's been a shift towards investors purchasing lower-priced homes and turning them into rentals. Already facing affordability issues, this competition at the entry-level market only adds to the roadblocks slowing first-time buyers."