Existing home sales soared in February, up a whopping 11.8% compared with January according to the National Association of Realtors. This is the largest jump ever with exception to 2017 when a mortgage policy change temporarily altered the data.
Realtors attribute this demand to the falling mortgage rates and home prices.
“Consumers are very sensitive to mortgage rates, at least that’s what we are finding out. So as mortgage rate began to drop, there was evidently a strong pent-up demand,” said Lawrence Yun, chief economist for the Realtors.”
Early last year, housing demand was large and rates were relatively low. The average rate on a 30 year-fixed loan was around 4%, according to the Mortgage News Daily. This caused a buying frenzy in the Spring. Supply remained tight and prices high.
During the summer, prices were moving out of reach as interest rates began rising. By November, the interest rates had climbed to over 5% on a 30-year fixed, and home sales dropped.
As mortgage rates began to fall in December and January to around 4.5 percent, there was renewed interest in purchasing. At the time, more potential buyers felt it was good opportunity to buy and believed the economy was improving, according to a sentiment survey by the Realtors in the first quarter of this year.
Sales in February were still 1.8% lower because mortgage rates were still slightly higher, but the supply also increased 3.2%. Home prices have been moderating for months and were up 3.6% in February.
“You can see we’re still trending to moderation, as years of high price gains has offset the benefit of lower rates, wrote Peter Boockvar, chief investment officer at Bleakley Advisory Group. The much more timely weekly mortgage applications is seeing flat growth year over year, but let’s hope that the Spring selling season will see a pick-up in transactions.”
Observers wonder whether this renewed interest will cause prices to heat up again, though they haven’t thus far. This is thought to be partially caused by builders who are not much increasing their single-family home construction, especially on the lower end of the market.
Existing home sales were still down at the entry level, approximately 11% annually for houses below $100,000. The prices of homes between $100,000 and $200,000 was also stagnant.
“One big change is that sales of higher-end homes that had been seeing strong gains last year were down more than 6 percent in February. That may be due to changes in the tax code that take away deductions on pricier homes.”
Moving forward, it’s not likely the market will see big gains like this one, which was four times the usual move in either direction. There is increasing supply, but it is still low at only 3.5 months worth. Income growth is stronger this year, but a big share of buyers are still on the edge of being able to afford a home.
“For-sale homes are staying on the market longer after years of frenzied home buying, and price cuts on listed homes are on the uptick, noted Danielle Hale, chief economist for realtor.com. But still-high home prices and relatively low inventory will continue to present affordability pressures, especially for first-time homebuyers.”
Source: CNBC.com – Read Full Article Here
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