High prices and tight supply are taking the wind out of home sales.
A monthly measure of signed contracts to buy existing homes slipped 0.8 percent in March from February. The so-called pending home sales index from the National Association of Realtors is just 0.8 percent higher than it was in March 2016.
“Home shoppers are coming out in droves this spring and competing with each other for the meager amount of listings in the affordable price range,” said Lawrence Yun, Realtors chief economist. “In most areas, the lower the price of a home for sale, the more competition there is for it. That’s the reason why first-time buyers have yet to make up a larger share of the market this year, despite there being more sales overall.”
Mortgage rates fell throughout March, giving buyers added financial incentive, but it was not enough to counter fast-rising prices. Home prices are already up nearly 7 percent from a year ago, and Yun said those gains could increase given the tight supply. Homes are selling at close to the fastest rate in recorded history, and 42 percent of homes sold at or above list price in March (the second highest amount since NAR began tracking in December 2012).
Affordability is clearly worsening, and that is sidelining more and more buyers. A report this week from real estate brokerage Redfin showed a drop in the number of home tours requested in March and the number of potential buyers writing offers. Mortgage applications to purchase a home are also weakening.
Regionally, the pending home sales index in the Northeast fell 2.9 percent for the month but is 1.8 percent higher than in March 2016. In the Midwest the index declined 1.2 percent monthly and 2.4 percent annually. Sales in the South rose 1.2 percent monthly and are 3.9 percent above last March. Sales in the West fell 2.9 monthly and 2.7 annually. Yun forecasts existing-home sales to be roughly 5.64 million this year, an increase of 3.5 percent annually and a smaller gain than last year.