(Bloomberg – Sales of U.S. home previously owned fell to their lowest level since June 2020, as rising mortgage rates and historically low inventory curbed sales. 

According to figures released Wednesday by the National Association of Realtors, contract closings fell 2.7% from March. This compares with the previous month. It was 5.77 million annually. This figure is in line with the estimates of an economist in Bloomberg.

“The housing market is starting to feel the impact of sharply rising mortgage rates and higher inflation taking a hit on purchasing power,” Lawrence Yun, NAR’s chief economist, said in a statement.

Home buyers have been long constrained by high prices and a shortage of inventory. Now they must also deal with inflation for decades and rising mortgage rates, now at over 5% — the highest rate since 2018. Borrowing costs will continue to rise as the Federal Reserve aims to control inflation.

Contracts typically take around a month to close so the data is often available before the most recent jump in borrowing cost.

NAR data revealed that while the number of houses for sale rose from one month ago, as is normal for this season, they were 9.5% less than last year. The current pace would mean that all available homes will be sold within two months. Any supply below five months is considered a sign that there’s a tight market.

The new demand is driving home builders to build more homes. But high costs of materials, longer delivery times, and continuing difficulties in finding qualified labor are creating backlogs. This mismatch between supply and demand is causing prices to rise.

Price rise

From a year ago, the median selling price rose 15% to record $375,000.300 in March. Sales are still muted in the lower price range where there’s limited inventory, while there’s more activity at the higher end, according to Yun.

Many buyers are finding it difficult to afford a house. This is due to rising affordability. The 30% increase in sales for first-time buyers was a historic high, but it is still a significant improvement on February. 

In March 2015, cash sales accounted for 28% of transactions. This is the highest number since 2014. The market was 18% dominated by investors, who tend to buy in cash, and therefore are less susceptible to interest rates.

Digging Deeper

• The Northeast, Midwest, and South saw sales declines; however they held steady for the West in March
• The average time properties remained in the marketplace was 17 days last month, against 18 days one year earlier
• The sales of condominiums and cooperatives fell by 3%. Single-family sales declined 2.7%
• The majority of U.S. residential property is owned by an existing home. They are assessed when the contract ends. The remainder of the housing market is made up of new-home sales. March data will be available next week.

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