The home-buying season has begun earlier this year from a large rise in existing-home and new-home sales. It looks like families are already on the move, including retirees and seniors downsizing to more humble quarters.
Why? Housing pricing are finally declining in some regions in concert with lower mortgage rates (see above Case-Shiller graph). Homebuyers must be thinking interest rates have topped and the Fed rate hikes will end sometime this summer.
“I’m quite surprised,” Lawrence Yun, chief economist at the National Association of Realtors said. “The recovery is coming stronger, [but] maybe it will deflate again if the mortgage rates get too high… [and] mortgage rates have a very big influence.”
Baby boomers now make up 39 percent of home buyers (ages 58 to 76 years old) – the most of any generation – an increase from 29 percent last year, said the NAR, in its press release.
Maybe rising consumer confidence is another reason home sales are up. The Conference Board's consumer confidence index rose to 104.2 this month from a reading of 103.4 in February.
The cutoff date for the confidence survey was March 20, 10 days after California-based Silicon Valley Bank collapsed. New York-based Signature Bank failed on March 12, said the Conference Board, so the fact that jobs were plentiful seemed to outweigh banking worries.
And housing prices are stabilizing. “The MoM decrease in the seasonally adjusted Case-Shiller National Price Index was -0.25%. This was the seventh consecutive MoM decrease, and a slightly smaller decrease than in December,” said Bill McBride, quoting its press release.
The biggest surprise was that existing-home sales jumped 14.5 percent in February to a seasonally adjusted annual rate of 4.58 million, snapping a 12-month slide and representing the largest monthly percentage increase since July 2020 (+22.4 percent). Compared to one year ago, however, sales will still down 22.6 percent.
Downward price pressure also came from increasing inventories of for sale residences. The total existing-home inventory registered at the end of February grew to 980,000 units, identical to January and up 15.3 percent from one year ago (850,000). Unsold inventory sits at a 2.6-month supply at the current sales pace, up from 1.7 months in February 2022 when the price surge began.
Mortgage rates are also declining along with Treasury security yields, down approximately down -0.50 percent. I spotted a 6 percent rate on a 30-year conforming fixed rate mortgage with low origination points recently, down from 6.50 two weeks ago.
Not so surprising is that twenty-six percent of all buyers were first-time buyers, the lowest since NAR began tracking the data and a decrease from 34 percent last year.
Another sign that the selling season has begun was pending home sales that measure contracts signed but not closed, increased for the third month in a row.
“After nearly a year, the housing sector’s contraction is coming to an end,” said chief economist Yun. “Existing-home sales, pending contracts and new-home construction pending contracts have turned the corner and climbed for the past three months.”
So when will conditions improve for first-timers again? When the Fed reverses course and interest rates decline for real, which I’ve been calling for. New-home inventory is now matching existing-home inventory, which means builders are catching up, maybe in preparation for a more hopeful summer season.
Harlan Green © 2023
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