Sales of previously owned homes declined 2.4% in March compared with February, according to a monthly report from the National Association of Realtors.
At a seasonally adjusted, annualized rate, that amounts to 4.4 million units. Sales were 22% lower than March of last year.
The weakness is likely due to a sharp jump in mortgage interest rates. With home prices still historically high, today's buyers are increasingly sensitive to even daily moves in mortgage rates. The March sales were likely based on contracts signed in January and February, when rates were volatile.
The average rate on the popular 30-year fixed mortgage started January around 6.45%, and briefly dropped below 6% by the end of the month, according to Mortgage News Daily. But things turned around sharply in March, with the rate jumping straight back up to 6.45% in the first week of March and then continuing higher to end the month at 6.85%.
"Home sales are trying to recover and are highly sensitive to changes in mortgage rates," said Lawrence Yun, chief economist for the NAR. "Yet, at the same time, multiple offers on starter homes are quite common, implying more supply is needed to fully satisfy demand. It's a unique housing market."
Supply did increase slightly, but it is still historically low. At the end of March, there were 980,000 homes for sale, an increase of 1% from February and 5.4% from March 2022. At the current sales pace, that represents just a 2.6-month supply. A six-month supply is considered a balanced market between buyer and seller.
Inventory is now 41% lower than pre-Covid pandemic levels in 2019. New listings were down 17% from March 2022. The reason supply is higher is simply because homes are staying on the market longer, an average 29 days compared with 17 days a year ago.
That tight supply is keeping home prices from cooling quite as much as some had predicted. The median price of an existing home sold in March was $375,700, down 0.9% year over year. That is, however, the weakest read since January 2012. Regionally, prices rose everywhere but in the West, where homes are most expensive.
That median price also indicates that more homes are selling on the lower end of the market. Sales of homes priced over $1 million were down 29% from March 2022, but sales of homes priced between $250,000 and $500,000 declined by a smaller 14%.
"Affordability is not only an issue for first-time homebuyers, but also for many repeat buyers who still need to take on a mortgage," said Danielle Hale, chief economist for Realtor.com, noting that a recent survey by the home listing site showed that 82% of potential sellers needing to sell and buy felt "locked in" by their existing low mortgage rate.
"This suggests that both existing home supply and demand will be sensitive to mortgage rate changes," added Hale.
Cash continues to be king in the market, with all-cash transactions making up 27% of March sales, down slightly from 28% in February, but still higher than historical norms. Investors made up 17% of buyers, lower than the 25% share seen last summer. First-time buyers made up 28% of sales, down from 30% the year before. Historically that share is closer to 40%.
"High home prices and higher mortgage rates are clearly presenting challenges," Yun said on the first-time buyer share.
Correction: Sales of homes priced between $250,000 and $500,000 declined by 14%. An earlier version misstated the range.