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Home Resales Fall 2.7% as a Surge in Mortage Rates Erodes Affordability

real estate agent placing sold sign on home

Sales of previously owned homes slipped 2.7% in March, the second consecutive monthly retreat, as a spike in mortgage rates and a shortage of properties stymied transactions.

Resales of single-family homes, condominiums and cooperatively owned apartments fell to 5.77 million at a seasonally adjusted and annualized pace, down from 6.02 million in February, according to a report from the National Association of Realtors on Wednesday. The median home price rose 15%, matching the annualized gain in the prior month, the NAR report said.

The highest mortgage rates in more than a decade are eroding affordability at the start of the so-called “spring selling season,” the March through June period when more than half of U.S. home sales typically occur, said Lawrence Yun, NAR’s chief economist. The average U.S. rate for a 30-year fixed mortgage was 5% last week, an 11-year high, Freddie Mac said in a report on Thursday.

“The housing market is starting to feel the impact of sharply rising mortgage rates and higher inflation taking a hit on purchasing power,” Yun said. “Still, homes are selling rapidly, and home-price gains remain in the double digits.”

Homes spent an average of 18 days on the market, down from 19 days a month earlier, Yun said.

"It's still a very swift-moving market," he said.

First-time buyers accounted for 30% of sales in March, up from 29% in February and down from 32% in March 2021, according to the NAR report.

“It’s still historically low, but bouncing off a low point,” Yun said. “The affordability challenges have really limited the first-time buyer part in the marketplace.”

There were 950,000 properties on the market at the end of March, down 9.5% from a year earlier, according to the report. In January, the inventory of previously owned homes for sale fell to an all-time low of 850,000, according to NAR data.

Typically, builders would kick into high gear to fill a shortage with new properties, but homebuilding has lagged since the 2008 financial crisis forced hundreds of contractors into bankruptcy, Yun said.

In addition, the Covid-19 pandemic created supply-chain bottlenecks that have made it difficult to find roofing shingles, drywall, and other materials, according to the National Association of Home Builders.

More than 90% of residential contractors reported shortages of appliances, 87% said they couldn't find enough windows and doors, and 70% couldn't get drywall, according to a survey conducted by NAHB in 2021.

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