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Weakening affordability and lack of supply sees home sales fall in the US

March 26, 2017

Weakening affordability and lack of supply sees home sales fall in the US

After starting the year at the fastest pace in almost a decade, existing home sales in the United States fell in February but remained above year ago levels both nationally and in all major regions.

Total existing home sales fell by 3.7% to a seasonally adjusted annual rate of 5.48 million in February from 5.69 million in January. Despite last month’s decline, February’s sales are still 5.4% above a year ago, according to the data from the National Association of Realtors (NAR).

The data also shows that the median existing home price for all housing types in February was $228,400, up 7.7% year on year and the fastest since January 2016 and the 60th month in a row of year on year rises.

The decline in sales has been caused by not enough properties on the market and weakening affordability conditions across the country which is stifling buyers, according to Lawrence Yun, NAR chief economist.

He pointed out that while real estate agents are reporting stronger foot traffic from a year ago, low supply in the affordable price range continues to push up price growth and pressurise the budgets of prospective buyers.

‘Newly listed properties are being snatched up quickly so far this year and leaving behind minimal choices for buyers trying to reach the market. Until an increase in listings actually occurs, home prices will continue to move hastily,’ Yun said.

Total housing inventory at the end of February increased 4.2% to 1.75 million but is still 6.4% lower than a year ago and has fallen year on year for 21 consecutive months. Unsold inventory is at a 3.8 month supply at the current sales pace, up from 3.5 months in January.

First time buyers accounted for 32% of sales in February, down from 33% in January but up from 30% a year ago. NAR research shows that during 2016 it averaged 35%.

But investors are making up an above average share of the market and Yun said that affordability constraints are holding back potential first time buyer who are currently renting and that means demand for rental homes will remain solid and fuel the interest of property investors. He added that the ability of investors to pay cash means that they are in competition with first time buyers.

A breakdown of the figures show that single family home sales fell 3% in February and are now 5.8% above a year ago. The median existing single family home price was $229,900, up 7.6% from February 2016.

Existing condominium and co-op sales fell by 9.2% but are still 1% higher than a year ago and the median existing condo price was $216,100, up 8.2% above a year ago.

In February existing home sales in the Northeast fell 13.8% but are still 1.5% above a year ago. The median price in the Northeast was $250,200, up 4.1% from February 2016 while in the Midwest, existing home sales fell 7% but are still 2.6% above a year ago with a median price of $171,700, up 6.1% year on year.

Existing home sales in the South increased 1.3% and are 5.9% above February 2016 with a median price of $205,300, up 9.6% year on year and in the West sales decreased 3.1% but are 9.6% above a year ago with a median price of $339,900, up 9.6% year on year.