03/22/2023
Want the Insight on what is happening in the Real Estate Market right now? Thanks to Lon Welsh, it is clearly laid out..
Home Prices Fell in February for First Time in 11 Years!
U.S. sales of existing homes jump 14.5% from prior month, but down sharply from the year earlier. The first year-over-year drop in home prices in more than a decade and a dip in mortgage rates snapped a yearlong streak of declining monthly home sales, showing the effects of the Federal Reserve’s campaign to raise interest rates.
Sales of previously owned homes, which make up most of the housing market, rose 14.5% in February from the prior month, but were down 22.6% from a year earlier, the National Association of Realtors said Tuesday. Sales had decreased for 12 consecutive months through January.
Buyers benefited from a slight improvement in affordability as home prices ticked lower and mortgage rates eased from a 20-year high touched last fall.
The national median existing-home sale price fell 0.2% in February from a year earlier to $363,000, the first year-over-year decline since February 2012. Median prices, which aren’t seasonally adjusted, were down 12.3% from a record high in June.
Mortgage rates topped 7% in November, but fell to near 6% in early February, before fluctuating in recent weeks.
The housing-market slowdown in the past year shows one of the main ways that the Fed’s aggressive interest-rate increases are rippling through the economy. Housing is one of the most rate-sensitive economic sectors, and high housing costs have been a big contributor to inflation. The Fed raises rates to fight inflation by slowing the economy through tighter financial conditions.
The latest data reflect a period before a pair of bank failures roiled financial markets. Homes typically go under contract a month or two before the contract closes, so the February sales data largely reflect purchase decisions made in January and December.
The collapse of Silicon Valley Bank and Signature Bank and the takeover of Credit Suisse Group AG by UBS Group AG have injected instability in the financial system and called into question whether the Fed will raise rates again this week. The Fed officials’ two-day meeting ends Wednesday. Investor concerns after the bank failures helped push mortgage rates lower in the week ended March 16 for the first time in six weeks.
In the short term, any decline in mortgage rates is likely to spur more home-buying activity, said Orphe Divounguy, a senior economist at digital real-estate company Zillow Group Inc.
But if unrest in the banking sector makes consumers more anxious about the economy entering a recession, that could weigh on demand, he said. Banks could also tighten lending standards, making it harder for home buyers to obtain mortgages, said Capital Economics in a note to clients.
“Buyers have been very responsive to changes in mortgage rates,” Mr. Divounguy said. But “with the erosion of trust in the financial sector, you could really end up with a more serious crisis.”
The spring is typically the most active season for home sales, because the weather is warmer and many families with children want to move into a new home over the summer, before the school year starts. A slow spring for home sales could weigh on revenues for home builders, mortgage lenders and real-estate brokerages, and reduce purchases of furniture, appliances and renovation services.
That could translate into a slowdown in consumer spending, the primary driver of U.S. economic output, and push the broader economy toward a contraction. Several economists warned that the economy will slip into recession this year as a result of the banking turmoil.
