U.S. home resales rose modestly in February, but a shortage of properties and prices rising at a fast clip are hampering the ability of borrowers to get into the market before interest rates start rising, according to Realtors.
Constrained inventory levels pushed price growth to its fastest pace in a year, said the National Association of Realtors Monday.
Total existing-home sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 1.2 percent to a seasonally adjusted annual rate of 4.88 million in February, from 4.82 million in January.
Sales are 4.7 percent higher than a year ago and above year-over-year totals for the fifth consecutive month. But economists had forecast home resales rising to a 4.90 million-unit pace last month.
The median existing-home price for all housing types in February was $202,600, which is 7.5 percent above February 2014. This marks the 36th consecutive month of year-over-year price gains and the largest since last February (8.8 percent).
Lawrence Yun, NAR chief economist, says there has been some stagnation in the market in recent months.
“Insufficient supply appears to be hampering prospective buyers in several areas of the country and is hiking prices to near unsuitable levels,” Yun said. “Stronger price growth is a boon for homeowners looking to build additional equity, but it continues to be an obstacle for current buyers looking to close before rates rise.”
Yun added that severe winter weather “likely had an impact on sales as more moderate activity was observed in the Northeast and Midwest compared to other regions of the country.”
Total housing inventory at the end of February increased 1.6 percent to 1.89 million existing homes available for sale, but remains 0.5 percent below a year ago (1.90 million). For the second straight month, unsold inventory is at a 4.6-month supply at the current sales pace.
According to Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage in February slightly rose to 3.71 percent from 3.67 percent in January, marking the first monthly increase since September 2014.
“With all indications pointing to a rate increase from the Federal Reserve this year – perhaps as early as this summer – affordability concerns could heighten as home prices and rents both continue to exceed wages,” adds Yun.
Tough Going for First-Time Home Buyers
A NAR study released earlier this month found that the disparity between rent and income growth is widening in metro areas throughout the country and is making it harder for renters to become homeowners.
The percent share of first-time buyers was 29 percent in February, up from 28 percent in January and the first increase since November 2014. First-time buyers represented 28 percent of all buyers in February 2014.
All-cash sales were 26 percent of transactions in February, down from 27 percent in January and down considerably from a year ago (35 percent). Individual investors, who account for many cash sales, purchased 14 percent of homes in February, down from 17 percent last month and 21 percent in February 2014. Sixty-seven percent of investors paid cash in February.
Fewer Bargains Available
Distressed sales – foreclosures and short sales – were 11 percent of sales in February, unchanged for the third consecutive month and down from 16 percent a year ago. Eight percent of February sales were foreclosures and 3 percent were short sales. Foreclosures sold for an average discount of 17 percent below market value in February (15 percent in January), while short sales were discounted 15 percent (12 percent in January).
“Investor sales are trending downward due to the continued rise in prices and fewer bargains available from distressed properties coming onto the market,” says NAR President Chris Polychron, executive broker with 1st Choice Realty in Hot Springs, Ark. “Furthermore, Realtors in areas popular to foreign buyers, such as South Florida and the West Coast, are reporting tempered demand from international clients – who typically pay in cash – due to the strengthening U.S. dollar compared to foreign currencies.”
Properties typically stayed on the market for 62 days in February, down from 69 days in January and unchanged from a year ago.
Short sales were on the market the longest at a median of 120 days in February, while foreclosures sold in 58 days and non-distressed homes took 61 days. Thirty-four percent of homes sold in February were on the market for less than a month.