Tight Supply Is Limiting Home Sales at Start of Spring

[Tariq Hakeem]

Tight Supply Is Limiting Home Sales at Start of Spring

The record-low number of homes on the market is limiting purchases heading into the spring selling season.

Home sales typically slow in the winter before climbing in the spring, as families try to buy homes and move before the start of a new school year. For-sale listings of previously owned homes usually rise in February.

But in the past year, homeowners have been reluctant to sell due to concern about the coronavirus and fierce competition for homes. There were 1.03 million homes for sale in the U.S. at the end of February, unchanged from the revised January level, which was the lowest in data going back to 1982, the National Association of Realtors said Monday. The level was down 29.5% from February 2020, a record annual decline, according to NAR.

The inventory shortage was the key reason why existing-home sales dropped 6.6% in February from January to a seasonally adjusted annual rate of 6.22 million, said Lawrence Yun, NAR's chief economist. "It is not that demand is disappearing from the marketplace. It is really the lack of supply," he said.

The February sales marked a 9.1% increase from a year earlier.

The housing market has boomed in the past year, as buyers took advantage of low interest rates and the pandemic prompted new demand for homes with space to work remotely. Houses are typically selling in less than three weeks, according to NAR. The median existing-home price rose 15.8% in February from a year earlier to $313,000, NAR said.

First-time home buyers Jill Hardy and Michael Zana struggled to find homes in their price range in Santa Cruz, Calif. Ms. Hardy had $200,000 saved to spend on a down payment but kept losing last fall to cash buyers who were willing to forego home inspections.

They found a house flipper who agreed to sell a house he was renovating before it went on the market. The sale closed last month. “There was no competition for this one, which I think is probably why I got it,” Ms. Hardy said.

At the current sales pace, there was a two-month supply of homes on the market at the end of February.

Nationally, there were more real-estate agents in February than there were houses to sell, according to NAR.

Homes typically go under contract a month or two before the contract closes, so the February figures largely reflect purchase decisions made in January or December.

That means sales could slow further in March, reflecting the severe winter weather that affected much of the country in February, according to Capital Economics.

Mortgage rates also ticked higher in February and March. For the week ended Thursday, the average rate on a 30-year fixed rate mortgage was 3.09%, the highest level since June, said Freddie Mac. The monthly payment for a $300,000 loan is $70 higher than at the start of the year, said Danielle Hale, chief economist for Realtor.com.

News Corp, owner of The Wall Street Journal, also operates Realtor.com under license from the National Association of Realtors.

In Boise, Idaho, home prices are rising quickly but homeowners are reluctant to sell, said Sheila Smith, team leader at Re/Max Capital City.

“They realized they can’t afford to buy anything, so they’re staying put and remodeling,” she said.

Existing-home sales fell the most month-over-month in the Midwest, down 14.4%, and in the Northeast, down 11.5%. Sales rose 4.6% in the West.

Home sales typically slow in the winter before climbing in the spring, as families try to buy homes and move before the start of a new school year.

Sales were especially strong at the high end of the market, with the number of homes selling that were priced over $1 million rising 81% in February compared with a year earlier, according to NAR.

Homes typically go under contract a month or two before the contract closes, so the February figures largely reflect purchase decisions made in January or December.

New-home construction has risen in the past year alongside demand, but shortages of land, labor and materials have raised builders’ costs and limited how quickly they can start new homes.

A measure of U.S. home-builder confidence declined in March, the National Association of Home Builders said last week. Housing starts, a measure of U.S. home-building, fell 10.3% in February from January, the Commerce Department said last week. Residential permits, which can be a bellwether for future home construction, fell 10.8%.

“There’s just not enough physical people,” especially in skilled trades, to meet home-building demand, said Ivy Zelman, chief executive of real-estate research and advisory firm Zelman & Associates.