WASHINGTON: US home sales dropped to a six-month low in February amid cold weather in many parts of the country and record low supply, and a rebound could be muted by rising mortgage rates as well as higher house prices.
Still, the report from the National Association of Realtors on Monday showed robust demand, with houses only staying on the market for a record-low 20 days last month after being listed.
The slump in sales did not dampen expectations for robust economic growth in the first quarter as brokers’ commissions only account for a fraction of gross domestic product. Growth is seen boosted by the White House’s massive $1.9 trillion fiscal stimulus and increased vaccinations against COVID-19, which are allowing more parts of the economy to reopen.
Existing home sales dropped 6.6% to a seasonally adjusted annual rate of 6.22 million units last month, the lowest level since last August. Sales declined in the Northeast, South and the Midwest, but rose in the West.
Economists polled by Reuters had forecast sales would drop 3.0% to a rate of 6.50 million units in February. Home resales, which account for the bulk of US home sales, increased 9.1% on a year-on-year basis, keeping them perched well above their pre-pandemic level. Activity continued to be concentrated in the upper price range of the market.
Bitterly cold weather, including severe winter storms in Texas and other parts of the densely populated South region, disrupted economic activity last month, depressing retail sales, production at factories and homebuilding.
Home resales have been running ahead of contracts. The 30-year fixed-rate mortgage has risen to a nine-month high of 3.09%, according to data from mortgage finance agency Freddie Mac. Though mortgage rates remain historically low, the sustained increase since February is contributing to making homeownership more expensive for first-time buyers.
Mortgage rates have risen in tandem with US Treasury yields, which have spiked in anticipation of stronger economic growth this year and higher inflation from the fiscal stimulus.
Growth estimates for the first quarter top a 6% annualized rate. The economy grew at a 4.1% rate in the fourth quarter. It is forecast expanding 7.0% this year. That would be the fastest growth since 1984 and would follow a 3.5% contraction last year, the worst performance in 74 years. The median existing house price jumped 15.8% from a year ago to $313,000 in February.
There were 1.03 million previously owned homes on the market in February, matching January’s all-time low. Supply plunged a record 29.5% from one year ago.
Builders are being constrained by record-high lumber prices as well as shortages of land and labour. At February’s sales pace, it would take two months to exhaust the current inventory, an all-time low and down from 3.1 months a year ago.
A six-to-seven-month supply is viewed as a healthy balance between supply and demand. Seventy-four percent of homes sold in February were on the market for less than a month.
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