A few reports released this week paint the picture of a market that is finally facing the realities of ongoing constraints. For months, buyers, sellers, and real estate professionals have watched in awe as prices rose, inventory shrank, and interest rates continued to improve. The market continued to perform, with sales continuously exceeding those of the previous month and outperforming any year-to-year measures. As recently released data from both the National Association of Realtors and the US Census Bureau/HUD show, the market may finally be slowing down as both new and existing home sales see steep declines from the previous month.
Existing Home Sales Decline After Strong Start
A recent report from the National Association of Realtors shows that coming off of a strong start in January, existing-home sales dropped by 6.6% in February, to a seasonally-adjusted rate of 6.22 million. Despite this month to month drop of sales, February 2021 still outperformed existing-home sales in February of 2020, showing an increase of 9.1%. While addressing why we may finally be seeing a slow down, Lawrence Yun, NAR’s Chief Economist, first pointed to the ongoing inventory challenge:
“Despite the drop in home sales for February – which I would attribute to historically-low inventory – the market is still outperforming pre-pandemic levels”
Yun, however, is not convinced that this will be a long-term trend. In highlighting what may still come as the year progresses he points to what could keep the market sustaining strong growth:
I still expect this year’s sales to be ahead of last year’s, and with more COVID-19 vaccinations being distributed and available to larger shares of the population, the nation is on the cusp of returning to a sense of normalcy… Many Americans have been saving money and there’s a strong possibility that once the country fully reopens, those reserves will be unleashed on the economy… Various stimulus packages are expected and they will indeed help, but an increase in inventory is the best way to address surging home costs”
Total housing inventory at the end of February stayed fairly consistent compared to January’s levels, with 1.03 million units (a 2 month supply) available. This supply number is also down from the previous year, though, by approximately 29.5% (1.43 mil units).
New Home Sales See an Even Larger Dip
New residential sales saw an even larger decline compared to January 2021, with February sales down by 18.2% (173,000 units), according to a new estimate provided by the US Census Bureau and HUD.
While a substantial drop compared to the previous month, this number of new-home sales is still higher than that of February 2020 by approximately 8.2% (59,000 units). Looking at hard supply, the estimate of new homes at the end of the month was 312,000, or a 4.8 month supply given the current sales rate. The median sales price was $349,400, and the average price was $416,000.
Bottom Line
The market, given its vast fluctuation over the past 12 months, is still trying to adjust to the huge influx of demand that has been sustained since last summer. Fast rising interest rates and steady price increases may finally be taking their toll on interested buyers, who could be putting their purchase on hold until more inventory is available. Given these stark and fast moving market trends, now is the best time to connect and maintain consistent communication with all your clients. Ensure they’re staying well informed and abreast with the most recent and relevant information, utilizing you as a top performing real estate professional.
