After rising to the highest level since 2007 in January, existing home sales fell by 3.7% m/m to 5.48 million (annualized) in February. The headline print was slightly weaker than market expectations which called for a 2.5% drop to 5.55 million.
The decline was concentrated in the single family segment where transactions fell by 3.0% to 4.89 million. Sales in the smaller condo/co-op segment retreated by a sharper 9.2% to 590 thousand.
On a regional basis, sales activity declined across most regions, pulling back in the Northeast (-13.8%), Midwest (-7.0%) and West (-3.1%), while a modest gain was recorded in the South (1.3%). Despite the pull back, activity remained higher than year-ago levels across the board.
The inventory of homes available for sale, while increasing 4.2% to 1.75 million on the month, remained 6.4% below year-ago level. The low supply of homes is pressuring up home prices, with the median home price accelerating to 7.7% y/y in February from 6.4% in the prior month.
First time homebuyers accounted for 32% of sales – down 1 percentage point from last month but up 3pp from year-ago.
Key Implications
While the pullback in activity is disappointing, it was not a surprise. The post-election rise in interest rates pulled forward some contract-signing and was bound to eventually weigh on sales activity as the initial rush dissipated. Demand for homes in February was also tempered by robust home price growth and very-low inventory levels – the latter being at a multiyear low, having fallen for nearly two years.
Sales activity is likely to remain relatively flat over the near-term, as the aforementioned factors continue to weigh on the housing market – a narrative corroborated by falling pending home sales data.
Still, the story is brighter over the longer-run as increasingly solid fundamentals – highlighted by robust job gains and rising wage growth which are both pulling more workers from the sidelines – should continue to buoy demand. Additional supply from rising new home building as well that of existing homes – as current owners increasingly believe it is a good time to sell a home to cash in on past price gains – will also help boost activity and alleviate some of the price pressures on existing home prices over the medium term.
