The U.S. housing market experienced a sluggish start to the spring buying season in March, with sales of previously occupied homes dropping in response to soaring mortgage rates and escalating prices deterring potential buyers. The National Association of Realtors reported a 5.9% decline in existing home sales from February, reaching a seasonally adjusted annual rate of 4.02 million units. This marks the most significant monthly drop since November 2022 and the slowest sales pace for March since 2009.
Compared to March last year, sales fell by 2.4%, failing to meet economists’ expectation of a 4.12 million pace. Lawrence Yun, the National Association of Realtors’ chief economist, attributed the slowdown to high mortgage rates, noting their impediment to economic mobility as the current residential housing mobility rates hit historical lows.
Home prices continued their upward trajectory for the 21st successive month at a slower rate, with the national median sales price rising 2.7% compared to a year earlier, setting a record high of $403,700 for March. However, this growth represents the smallest annual increase since August. The housing market has faced persistent challenges since 2022 due to climbing mortgage rates, which have hindered sales, overriding the recovery from pandemic-era lows.
The start of 2024’s spring homebuying season was dampened by higher mortgage rates, which had previously surged above 7% in mid-January and stabilized at elevated levels. According to Freddie Mac, the average rate on a 30-year mortgage climbed to 6.83% last week, the highest in eight weeks, before slightly easing to 6.81% this week. The homes sold last month likely went under contract when the 30-year mortgage rate ranged between 6.89% and 6.63%.
In contrast to the decline in existing home sales, newly built homes saw a significant rise, with sales increasing by 7.4% from February and 6% year-over-year, as reported by the Commerce Department. Homebuilders are actively boosting sales through incentives like reducing buyers’ initial mortgage rates and concentrating on smaller, affordable homes, which helped decrease the median sale price of new homes to $403,600.
The market for existing homes tends to attract wealthier buyers who can afford elevated mortgage rates or pay in cash. Sales of homes priced at $1 million or more surged by 14% year-over-year last month, while sales in the $100,000 to $250,000 range dropped by 4%, according to the National Association of Realtors. This phenomenon continues to drive up median prices for existing homes.
Despite more homes entering the market in March, sales still fell. Inventory at the end of the month reached 1.33 million unsold homes, an 8.1% increase from February and nearly a 20% increase from the previous year. This equates to a 4-month supply at the current sales rate, still below the balanced market standard of 5- to 6-months of supply. Properties are taking longer to sell, with homes lasting 36 days on the market in March, up from 33 days during the same time last year.
The combination of more available homes and reduced asking prices in several metro areas from Miami to San Diego presents a slightly improved scenario for buyers capable of affording a home. Sellers are increasingly offering financial assistance to buyers, such as covering repair and closing costs, with Redfin data indicating that sellers offered concessions in 44.4% of transactions in the first quarter, compared to 39.3% a year ago. Furthermore, more than 23% of home listings on Zillow experienced price reductions in March, marking the highest share in at least five years.
Despite these trends that favor buyers, the real estate market remains largely inaccessible to many Americans, particularly first-time buyers who lack home equity to support a new purchase. The recent deceleration in price growth does little to offset the nearly 50% price surge over the last five years. According to Lisa Sturtevant, chief economist at Bright MLS, uncertainty and anxiety are expected to dominate this year’s spring housing market. While some buyers might take advantage of increased listings and room for negotiation, others may hesitate due to the prevailing unpredictability.