Monthly home sales fell for only the second time since the real estate market’s spectacular pandemic-era recovery, but it wasn’t for lack of people wanting to buy them—quite the opposite, in fact.
- Home sales dropped 6.6% in February, the biggest decline since the housing market took off last year in one of the few bright spots in the pandemic economy.
- The lack of homes for sale was a major factor in the decline, economists said: For months, there have been more Realtors than there are homes for sale.
- Despite an uptick in mortgage rates, economists are still expecting 2021 sales to top last year’s as the economy reopens.
At 6.22 million on an annualized and seasonally adjusted basis, the number of existing homes sold in February fell 6.6% from January, the National Association of Realtors (NAR) said in its monthly report Monday, which covers single-family homes, townhouses, condos, and co-ops. The number of homes on the market remained at a record low 1.03 million units, holding back sales as buyers were left to pick through ransacked listings.
Despite the havoc on jobs and the broader economy, the pace of home sales has actually benefited from the COVID-19 pandemic, thanks in part to record low mortgage rates and heavy demand by remote workers hungry for office space. Even after a mild uptick in rates, houses have been selling at breakneck speeds lately, with the low supply of homes for sale being the main constraint on sales, according to some economists. The supply of available homes is so depleted that ever since October, there have been more Realtors than homes for them to sell.
“Continued extremely low levels of inventory make it hard for there to be significant growth,” said Douglas G. Duncan, chief economist at Fannie Mae, which helps finance mortgages across the country.
The weather also played a role in February’s downturn, Duncan said, pointing to the increase in sales in the West, one of the few areas spared severe winter storms. (And to put the decline in perspective, sales were still 9.1% higher than in February 2020, before the pandemic began.)
February saw only the second decline in home sales since May—October’s 2.1% decrease being the other. The supply of homes for sale is so low that at the current sales pace, the entire inventory would be exhausted in just two months, well above the 6-month supply that NAR says typically accompanies “moderate” price increases and just a tad higher than the record low 1.9-month supply seen the previous two months.
Indeed, signs of a seller’s market persist, with home prices rising to a median of $313,000, 3.1% higher than in January and almost 16% higher than in February 2020.
Considering the lack of homes on the market, the fact that sales weren’t even worse means they’ll continue to be strong if and when more inventory becomes available, Duncan said.
The average rate for a 30-year fixed mortgage—which dipped as low as 2.65% in January—rose to 3.09% last week, according to Freddie Mac. But it’s still very low by historical standards, Duncan said, predicting the recent moderate interest rate increases won’t do much to deter buyers. In fact, he expects more homes will be sold in 2021 than in 2020: 5.98 million this year compared to 5.64 million in 2020.
Lawrence Yun, chief economist at the NAR, agrees.
"I still expect this year’s sales to be ahead of last year's, and with more COVID-19 vaccinations being distributed and available to larger shares of the population, the nation is on the cusp of returning to a sense of normalcy," Yun said in a statement on the February figures. "Many Americans have been saving money and there's a strong possibility that once the country fully reopens, those reserves will be unleashed on the economy."
The annualized rate of 6.22 million homes sold fell short of the 6.34 million predicted by Moody’s Analytics.