In March, existing home sales in the United States fell by 4.3%, marking the sharpest drop in over a year. This decline was attributed to rising home prices and steady mortgage rates, highlighting the ongoing affordability challenges in the housing market. The median price of an existing home also rose to $393,500, the highest March price on record. Despite an increase in home sales from previous lows, sales may not rise significantly higher as the Federal Reserve indicates that it will not cut interest rates in the near future.
The housing market was off to a strong start this year, but the momentum seems to have slowed down due to stagnant interest rates. NAR chief economist Lawrence Yun noted that while job numbers have increased since pre-Covid levels, home sales remain stuck as interest rates have not made significant movements. Mortgage rates play a crucial role in determining housing affordability, frustrating potential buyers in a market where prices are rising and interest rates are holding steady.
Last year, home sales were at their lowest level in nearly three decades as mortgage rates reached a two-decade high of 7.79% in October. Expectations of aggressive interest rate cuts by the Federal Reserve in 2024 led to a decline in rates, but disappointing inflation reports and a strong economy have kept rates stable. Home prices across the country have not shown any significant retreat, further complicating affordability for potential buyers.
Despite the challenges, there was a positive development in the market with an increase in first-time homebuyers in March. Representing 32% of all transactions, first-time buyers were up from 26% in February and 28% higher than a year ago. This increase may be attributed to potential changes in how homebuyers and sellers pay their real estate agents as part of a historic NAR settlement announced in March. The settlement, which has not yet been approved by the courts, is expected to prompt some buyers to enter the market before the new rules take effect.
Overall, the housing market in the United States continues to grapple with affordability issues as home prices rise and mortgage rates remain stable. The recent decline in existing home sales, along with the lack of movement in interest rates, indicate that the challenges persist for potential buyers. While there have been some positive signs, such as an increase in first-time homebuyers, the market remains uncertain as the Federal Reserve signals a reluctance to cut rates and inflation continues to pose challenges. Buyers and sellers are navigating a complex market landscape, with factors such as rising prices and potential changes in industry regulations shaping their decisions.
