Sales of existing homes tumbled last month as housing became less affordable across the country.
Existing-home sales declined by 7.2% in February to a seasonally adjusted annual rate of 6.02 million, according to a report by the National Association of Realtors released on Friday.
Additionally, the NAR said the median existing-home sales price rose to $357,300, up 15.0% for the 12 months ending in February. The hike marks 120 consecutive months of year-over-year price increases, the longest recorded streak.
Mortgage rates rose quickly in February as the Federal Reserve prepared for its first interest rate hike in years to curb inflation. As of Thursday, the average 30-year fixed-rate mortgage was 4.16%, up more than 1 percentage point from a year before. On Wednesday, the Fed announced it would raise its interest rate target by a quarter percentage point.
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In addition to the NAR’s findings, the S&P CoreLogic Case-Shiller U.S. National Home Price Indices found that home prices rose by nearly 19% in 2021 — the largest increase notched in the 34 years that the record has been kept.
“Housing affordability continues to be a major challenge as buyers are getting a double whammy: rising mortgage rates and sustained price increases,” said Lawrence Yun, the NAR’s chief economist. “Some who had previously qualified at a 3% mortgage rate are no longer able to buy at the 4% rate.”
“Monthly payments have risen by 28% from one year ago, which interestingly is not a part of the consumer price index, and the market remains swift with multiple offers still being recorded on most properties,” Yun added.
Homes for sale have also been in short supply. Total housing inventory at the end of February totaled 870,000 units, a 2.4% increase from January but down 15.5% from one year ago, according to the NAR.
High inflation across the board is also cutting into consumers’ savings and making home buying less affordable. Consumer prices rose a mammoth 7.9% for the 12 months ending in February, the largest increase since 1982. The biggest increases came in energy costs, although staples such as food are also much more expensive now than a year ago.
The Fed is expected to hike its interest rate targets several times this year in order to tamp down the country’s rate of inflation, a move that will have a profound effect on the cost of buying a home.
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Last month, Gay Cororaton, the NAR’s housing and commercial research director, told the Washington Examiner that mortgage rates could push as high as 4.5% by the end of the year, which makes a huge difference in terms of housing affordability.
For instance, just a change of 1 percentage point can increase monthly mortgage rate payments by hundreds of dollars.
