The housing market slowed in February, more than anticipated.
Existing home sales plummeted 6.6% to a seasonally adjusted 6.22 million in February from a month earlier, according to the National Association of Realtors (NAR). January existing home sales were revised slightly down to 6.66 million from 6.69 million. The decline far outpaced the expected decrease of 2.8%, according to Bloomberg consensus estimates.
“Despite the drop in home sales for February — which I would attribute to historically-low inventory — the market is still outperforming pre-pandemic levels,” said Lawrence Yun, NAR’s chief economist.
Despite the drop, the NAR noted that sales were up 9.1% last month from February 2020, which was before the COVID-19 pandemic swept through the U.S. Also, existing home sales are already ahead of the total number of sales 5.6 million units, for the entire year of 2020, Yun said.
"The path forward looks promising. After gradually retreating to begin the year, signs of buyer activity — especially the level of mortgage applications — have rebounded in recent weeks, suggesting many home shoppers are getting a jump on what promises to be a busy spring season," said Zillow Economist Matthew Speakman in a press statement after the results. "What’s more, improvements in the economy and continued distribution of the COVID-19 vaccine should encourage more homeowners to place their homes on the market."
The number of homes for sale, otherwise known as inventory, fell to a record low of 1.03 million units, the same as in January, according to revised data. That was down 29.5% from one year ago — the largest annual decline on record. Typically you see an increase in inventory from January and February but that did not occur this year, according to Yun.
The median existing-home price in February was $313,000, up 15.8% from February 2020, as prices rose in every region. February’s national price jump marks 108 straight months of year-over-year gains.
“It’s quite a dramatic drop that’s the reason why price is rising, demand is very strong and is reflected in days on the market,” Yun said during a press conference announcing the results. "We need more supply to tame the price growth."
Properties typically remained on the market for 20 days in February, down from 21 days in January and from 36 days in February 2020 — the swiftest pace since NAR started tracking how many days units stay on the market. Seventy-four percent of the homes sold in February 2021 were on the market for less than a month. A year ago there was 3.1 months supply of inventory; currently there's a two-month supply of inventory at the current sales pace.
"Demand is not disappearing, it is a lack of supply," said Yun.
Even with this decline in home sales, sales are "still be well above the pre-pandemic run rate,” Credit Suisse wrote in a note prior to the results. “Existing home sales have recently outperformed negative signals in the pending home sales data, which have declined 5.7% since August 2020, but we expect the two series to converge. Home builder sentiment, reflecting the housing market outlook from the supply side, has also declined slightly in recent months.”
Yun warned that "in upcoming months demand may retreat" as mortgage rates increase. The February results do not reflect the already rising rates, since all the sales represent deals that were signed in January before rates started inching up. Earlier this month, interest rates for a 30-year fixed mortgage topped 3% for the first time since July. Yun predicts that the 30-year fixed mortgage rate will hit 3.5% by December, which is "why we need more supply."
Amanda Fung is an editor at Yahoo Finance.
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