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Weak Start to Spring Housing Market Amid High Mortgage Rates
As the spring housing market begins, it faces significant challenges arising from elevated mortgage rates and widespread economic concerns.
Recent data from the National Association of Realtors reveals that sales of previously owned homes in March dropped by 5.9% compared to February, reaching an annualized rate of 4.02 million units. This decline marks the slowest sales pace for March since 2009.
Year-over-year comparisons show a decrease of 2.4% in sales from March 2024, with declines evident across all regions of the country. The West experienced the most significant drop, with sales tumbling over 9%. Interestingly, this region recorded a slight year-over-year increase, bolstered by robust activity in the Rocky Mountain states, driven by strong job growth.
The sales figures reflect closings primarily based on contracts signed in January and February, a period when the average interest rate for a 30-year fixed mortgage exceeded 7%. Rates did not stabilize below this threshold until late February, as reported by Mortgage News Daily.
According to Lawrence Yun, chief economist at NAR, “The sluggish home buying and selling activity in March can be attributed to the affordability issues tied to high mortgage rates.” He cautioned that the current low levels of residential housing mobility could hinder economic progress.
Despite the downturn in sales, there was a notable increase in available listings. By the end of March, 1.33 million homes were on the market, reflecting a nearly 20% rise from the previous year. At the present sales rate, this supply amounts to a four-month inventory, which remains low compared to the six-month supply that characterizes a balanced market between buyers and sellers.
The increase in inventory, paired with slowing sales, is beginning to exert downward pressure on home prices. The median price of existing homes sold in March reached $403,700—an all-time high for the month—but this represents an increase of just 2.7% from March 2024. The annual price growth has decelerated since December, with this gain being the smallest since August.
“In contrast to the trends seen in the stock and bond markets, household wealth linked to residential real estate is achieving new peaks,” Yun stated. “With real estate asset valuation reaching $52 trillion, a 1% increase in home prices equates to an additional $500 billion added to household balance sheets.”
First-time homebuyers constituted 32% of the market in March, maintaining the same proportion as the previous year, yet historically, they typically represent about 40% of the market. Additionally, while all-cash sales dipped to 26% from 28% in the prior year, investor activity remained stable at 15% of total sales.
In a concerning trend, NAR is already observing an uptick in canceled contracts for March. Given the volatility in the stock market throughout April, the number of cancellations may continue to rise.
“While March’s numbers are disappointing, the outlook appears grim,” noted Robert Frick, corporate economist at Navy Federal Credit Union. “Along with the persistent challenges posed by high prices and mortgage rates, rising costs for home furnishings due to impending tariffs, coupled with growing consumer anxiety over inflation and employment, may exacerbate the tendency for families to adopt a more conservative approach to housing decisions.”
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