The spring homebuying season has begun on a slow note as potential homebuyers grapple with increased mortgage rates and escalating home prices. According to the National Association of Realtors, sales of previously owned U.S. homes dropped by 4.3% in March to a seasonally adjusted annual rate of 4.19 million, marking the first monthly decline since December. Despite this decrease, the sales figures slightly exceeded economists' expectations.
The surge in mortgage rates in February and March has contributed to the sluggishness in the housing market. The average rate on a 30-year mortgage recently surpassed 7%, the highest level since late November, as reported by Freddie Mac. This trend has posed challenges for homebuyers during the traditionally busy spring homebuying season.
One of the key factors affecting the market is the limited inventory of homes available for sale. The national median home sales price rose by 4.8% from the previous year to $393,500, reflecting intense competition among buyers. In March, 60% of homes sold within a month of listing, with 29% selling above their initial list price.
While the inventory of unsold homes increased by 4.7% from February, it remains below historical averages. At the end of March, there were 1.11 million unsold homes on the market, representing a 3.2-month supply at the current sales pace. In a balanced market, there would typically be a 4- to 5-month supply.
The shortage of homes has given sellers an advantage, particularly in the lower-priced segment where multiple offers are common. First-time homebuyers, who face challenges due to rising prices and limited inventory, accounted for 32% of all home sales in March.
Economists anticipate that mortgage rates may ease slightly later in the year, providing relief to buyers. Despite the current challenges, there is optimism that the housing market will see improvements as the year progresses.
