Existing home sales rose by 1.1% m/m to 5.6 million units (annualized) in March, exceeding market expectations for a modest gain of 0.2% m/m. On a year-over-year basis, home sales remain 1.2% below their year-ago level.
The increase was broad-based, as sales of both single-family homes (+0.6%) and condos/co-ops (+5.1) rose on the month.
Activity was mixed across the country. Sales declined modestly in the South and West, giving up some of the large increases seen in the prior month. Meanwhile, activity finally improved in the Northeast (+6.25%) and Midwest (5.7%) in March, after previously falling for three consecutive months. Still, in both regions sales remain below their year-ago level, particularly in the Northeast, where they are 9% below their March 2017 level.
Prices continued to rise quite fast, accelerating in March with the start of the busy spring buying season. The median price of an existing home was up 5.8% year-on-year, up from 5.5% pace seen in February.
Rising prices reflect the continued tight supply conditions prevailing in the housing market. While the inventory of homes available for sale rose 5.7% in March, it is 7.2% lower than a year ago. Given the tight inventory, houses were selling briskly. Properties stayed on the market on average for 30 days, down from 37 days in February and 34 days a year ago.
First time buyers accounted for 30% of sales in March, down from 32% a year ago.
Key Implications
It is encouraging to see sales and inventory rise for a second consecutive month as we head into the busy spring buying season; however, one can’t help but wonder what activity may have been if not for restrained supply. With a risk of sounding like a broken record, the underlying story in the U.S. housing market remains broadly unchanged – one of a tug-of-war between solid demand and insufficient supply, particularly in the entry-level segment.
Deteriorating affordability on the back of rising mortgage rates and prices, and low supply of entry level houses is particularly problematic for first-time homebuyers. Unfortunately, given the quickly rising costs for construction material and labor, homebuilders are unlikely to ramp up construction sufficiently in the near-term to provide a meaningful reprieve for the first-time buyers.
Inclement weather and new tax regulations, have taken a toll on resale activity in the Northeast. However, it appears that the market is finding its footing after a three-month long hiatus. Still, even as the weather improves, the impact of the tax changes will continue to weigh on price growth and resale activity in the region
