Economic Report: ‘Sales have a good deal further to fall’: Property prices see record growth, but existing-home sales decline

“The sales for March would have been measurably higher, had there been more inventory,” Lawrence Yun, chief economist for the National Association of Realtors, said in the report. “Without an increase in supply, the society wealth division will widen with homeowners enjoying sizable equity gains while renters will struggle to become homeowners.”

What happened: Single-family sales dipped 4.3% month-over-month in March, but sales of condominiums and co-ops actually rose 1.4%. Sales fell across every region, with the largest decline occurring in the West — where they dropped 8% since February.

Home prices hit a high of $329,100 last month, reflecting a record pace of price growth at 17.2% from the previous year. Prices rose by double digits in every region of the country, the report noted.

Inventory improved marginally, rising to a 2.1-month supply in March from a 2-month supply the month prior. A 6-month supply of homes is considered to be indicative of a balanced market.

The rise in inventory did not stem the fast-pace of sales. Properties were on the market for only 18 days on average, a record low. Altogether, 83% of homes that sold in March were on the market for less than a month.

The big picture: To some extent the smaller number of homes sold in March is a reflection of the prior month’s bad weather. The existing-home sales report reflects transactions where the sale has closed, which typically comes between one and three months after the contract was signed.

But inventory still presents the largest burden to the housing market. The short supply of homes and strong demand from buyers have steadily pushed prices higher, threatening to make the market unaffordable for many families.

The good news for buyers is that more homes are coming on the market. The number of new listings was up 40% year-over-year for the week ending April 17, according to a new report from Realtor.com. Active inventory still remains about half of what it was a year ago.

“At the same time, when we compare the current housing supply to 2019, the market is lagging behind,” Realtor.com chief economist Danielle Hale said in the report.

Nevertheless, the steady stream of new listings is a sign that the housing market is behaving normally. Spring is historically the busiest time of year for home sales, and this year shouldn’t be an exception — unlike last year when the onset of the pandemic halted transactions.

Moderation in mortgage rates could also provide a boost to the housing market. For most of 2021, interest rates were rising — a reflection of the improving confidence in the state of the economy. But in recent weeks, mortgage rates began to fall. Now, they are once again below 3% on average, according to Freddie Mac. The decrease in rates should spur continued interest in home buying, as evidenced by a higher pace of applications for loans used to buy homes.

“The signal from the weekly mortgage-purchase applications data is positive for home sales,” wrote Rubeela Farooqi, chief U.S. economist at High Frequency Economics.

What they’re saying: “This reflects the prior month’s bad weather (which curbed transaction closings in March) rather than a downward shift in underlying demand,” Sal Guatieri, senior economist at BMO Capital Markets, wrote in a research note.

“The storm didn’t help in February, but any rebound was more than offset by the much bigger problem for the housing market, which is that mortgage demand has tanked in recent months. It shows no sign yet of reviving. Sales have a good deal further to fall, though we remain hopeful that the second half of the year will bring an improvement,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics.

Market reaction: The Dow Jones Industrial Average
DJIA,
-0.26%
 and the S&P 500
SPX,
-0.07%
 were both down in Thursday morning trading.