US Home Sales Plummet: Sky-High Mortgages & Prices to Blame

US Home Sales Plummet: Sky-High Mortgages & Prices to Blame

The spring homebuying season has begun, but it’s off to a slow start as home shoppers face challenges with higher mortgage rates and escalating prices. According to the National Association of Realtors, sales of previously occupied US homes dipped by 4.3% in March, reaching an annual rate of 4.19 million. This decline marks the first drop since December, following a significant 10% surge in February.

Despite the decrease in sales, existing home sales also fell by 3.7% compared to March of the previous year. However, home prices continued to climb for the ninth consecutive month when compared to the previous year.

Although the latest sales figures slightly exceeded economists’ expectations, with a pace higher than the projected 4.16 million, the market still experienced a pullback in sales activity.

The median sales price nationwide rose by 4.8% from the previous year, reaching $393,500. While the supply of homes on the market remains below historical averages, there was a modest increase in available properties for sale ahead of the spring homebuying season, providing home shoppers with more options to consider.

At the end of the previous month, there were 1.11 million unsold homes on the market, marking a 4.7% increase from February and a notable 14.4% rise compared to a year earlier. Despite this uptick in inventory, the available supply equated to a 3.2-month level, slightly up from 2.9 months in February and 2.7 months in March of the previous year. In a balanced market scenario, the ideal supply typically ranges between 4 to 5 months.

Lawrence Yun, the chief economist at the NAR, noted that although home sales are slowly recovering from cyclical lows, they remain constrained by the stability of interest rates. With nearly 6 million more jobs compared to pre-COVID levels, indicating a robust market for potential home buyers.

Mortgage rates have been on the rise in recent weeks due to strong reports on employment and inflation, creating uncertainty among bond investors regarding the Federal Reserve’s potential interest rate adjustments. The average rate for a 30-year mortgage has climbed from 6.67% to 7.1%, posing financial challenges for borrowers by increasing their monthly costs.

Factors contributing to mortgage rate fluctuations include the bond market’s response to the Federal Reserve’s interest rate policy and shifts in the 10-year Treasury yield, a key metric influencing home loan rates. The 10-year Treasury yield surged to approximately 4.66%, the highest level since early November, following indications from Federal Reserve officials of a possible steady interest rate policy to combat persistent inflation concerns.

As the housing market navigates through these uncertainties, prospective homebuyers and sellers are advised to stay informed about evolving mortgage rates and market conditions to make informed decisions in this dynamic real estate landscape.

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