In February, all regions experienced a decrease in pending home sales (contracts penned), according to the National Association of Realtors (NAR). Compared to January, sales fell 10.6%, and fell 0.5% from February 2020.
As with every real estate news story you’ve read here in recent years, NAR continues to point to tight inventory levels as the continuing plague on the market.
“The demand for a home purchase is widespread, multiple offers are prevalent, and days-on-market are swift but contracts are not clicking due to record-low inventory,” said NAR’s Chief Economist, Dr. Lawrence Yun.
He observes that overall demand does not appear to be impacted by mortgage rates trending upwards, expected to remain low at no more than 3.5% this calendar year.
It is interesting to note, however, that more expensive homes had increased sales activity because of “reasonable supply,” per Dr. Yun, adding that homes above the $250,000 mark have driven home sales in recent months.
That said, Dr. Yun indicates that even homes priced above $500,000 to less than $1 million are subject to the tight inventory challenges.
“Potential buyers may have to enlarge their geographic search areas, given the current tight market,” Dr. Yun noted. “If there were a larger pool of inventory to select from – ideally a five- or a six-month supply – then more buyers would be able to purchase properties at an affordable price.”
In past months, NAR has repeatedly pointed to the same solution to the inventory challenge – new home builders. If supply were increased and housing starts improved, demand would be more readily satiated and fewer people would be priced out of the market.
Economic conditions typically shift under any new President, and with an ongoing pandemic, we are watching for any signs of hope in a dark time. With building material costs continuing to increase, labor conditions in the sector remaining difficult, mortgage rates are rising (albeit slowly), inventory levels are not expected to immediately improve.