Has the U.S. housing market run out of steam?
The pace of pending home sales nationwide fell in February by the most since April as rising home prices, pricier loans, and a shortage of available properties deterred buyers.
The National Association of Realtors’ index of pending home sales decreased 10.6% from the prior month to 110.3, the lowest reading since May, according to data released Wednesday. Contract signings were down 2.7% from the same period in 2020 on an unadjusted basis.
Surging home prices and low inventory are slowing the pandemic-era housing boom, evidenced by declines in contract signings in all four U.S. regions. In addition, severe winter weather limited purchases during February. At the same time the average rate for a 30-year fixed-rate mortgage has been increasing, which may affect buyer demand in the coming months.
“The demand for a home purchase is widespread, multiple offers are prevalent, and days-on-market are swift but contracts are not clicking due to record-low inventory,” Lawrence Yun, chief economist at the NAR, said in a statement.
By region, contract signings fell the most in the South, where winter storms curtailed business activity and led to a 13% slump in pending home sales. In the Midwest, sales declined 9.5% and in the Northeast they fell 9.2%. In the West, they decreased 7.4%.
It’s not just slim choices. Prices are soaring. The S&P CoreLogic Case-Shiller house price index, released Tuesday, showed a 11.2% jump in January from a year ago — the fastest in 15 years, after rising 10.4% in December.
Financing is costlier, too. After falling to an all-time low of 2.65% in January, the 30-year fixed-rate mortgage hit 3.17% on March 25, the highest level in more than nine months. While borrowing costs are expected to continue to rise, NAR’s Yun said he doesn’t expect rates to exceed 3.5% this year.
Contract signings are considered a barometer of purchases that will take place in the next two months. Previously, the Commerce Department reported that home construction fell sharply, slipping 10.3% in February due to severe winter weather in much of the country. Applications for new building permits, considered a good indication of future activity, fell for the first time since October.
Economists have been optimistic that housing will bounce back in coming months. Rising demand has been fueled by Americans who have been cooped up as the coronavirus pandemic drags on past the one-year mark.
Bloomberg news and Associated Press contributed to this report.
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