Sales of existing homes fell by 2.7% to 5.77 million in March, the lowest since July 2020, as rising mortgage rates dampened demand. The median home price, however, hit a record high at $375,300, pointing to persistent housing shortages, according to data the National Association of Realtors released on Wednesday.
Given the potential of multiple 50 basis-point rate hikes by the Federal Reserve starting this May and the Fed’s overall hawkish tone, demand for housing is expected to cool down further this year. In addition, increasing supplies of new houses in recent months have helped ease some of the demand for existing homes.
Looking at pending home sales—which typically become existing home sales within two months—we would not be surprised if existing home sales return to the pre-pandemic level of around 5.3 million annualized rate as the credit market is brought back to neutral.
In the meantime, buyers are trying to bypass rising rates with all-cash purchases. The share of all-cash buyers in March rose to 28%, up from 25% in February and the highest rate since 2014.
The share of first-time buyers remained steady at 30% as they looked to lock in current mortgage rates before they go higher.
As a result, homes are still selling fast compared to the industry’s long-term sustainable pace of around six months of supply. The current selling pace in March left inventory low at only two months.
Sales declined in three of the four major regions except for the West, where existing home sales were flat on the month.