As Mortgage Rates Rise, Home Prices Hit a New High in March

In March, home prices in the United States reached a new high of $375,300, as mortgage interest rates rose and a lack of available homes stymied buyers.
Prices rose despite a drop in previously owned home sales in March.

Source: WSJ | Published on April 20, 2022

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The National Association of Realtors reported Wednesday that existing-home sales fell 2.7 percent in March from the previous month to a seasonally adjusted annual rate of 5.77 million. Sales fell 4.5 percent in March compared to the same month last year.

According to NAR, the median existing-home price increased 15% year on year in March. The figure of $375,300 is a record high in data dating back to 1999.

Mortgage interest rates have risen since the beginning of the year, raising monthly payments for home buyers and forcing some would-be homeowners out of the market.

According to mortgage finance giant Freddie Mac, the average rate on a 30-year fixed-rate mortgage was 5% as of Thursday, up from 3.04 percent a year ago.

Simultaneously, home-buying demand continues to outstrip the extremely low inventory of available homes for sale. Many properties on the market receive multiple offers, driving up prices.

"Home prices have consistently moved upward as supply remains tight," said Lawrence Yun, chief economist for the National Association of Realtors. Low interest rates and consumer demand for more space to work from home boosted home sales during the pandemic, he said. "We're returning to pre-Covid home sales activity levels."

Economists polled by The Wall Street Journal predicted a 4.5 percent monthly drop in sales of previously owned homes, which account for the majority of the housing market.

According to the National Association of Realtors, the spring season is often the busiest for home sales, with 40 percent of typical existing-home purchases occurring between March and June.

The rapid rise in mortgage rates since the beginning of the year may cause the market to slow from its current pace as some buyers are priced out. However, rising interest rates may be offset by a lack of inventory, according to Robert Frick, corporate economist at Navy Federal Credit Union.

"The number of people in the market has decreased, but so has the number of available homes," Mr. Frick explained. "If mortgage rates rise much further, I believe they will become a factor, but I do not believe they are a factor yet."

Higher mortgage rates, combined with rising home prices, make homeownership less affordable for first-time buyers.

"We do see a lot of serious, preapproved buyers who were ready to go just a month ago and are now out of the market," said Monika Prasai, a San Diego real estate agent. "It's just extremely difficult for them to compete."

However, the market remains frantic, she said, as buyers rush to lock in their purchases before mortgage rates rise even further. "Right now, it's like fighting tooth and nail. "It's extremely competitive," she said.

According to the National Association of Realtors, there were 950,000 homes for sale at the end of March, up 11.8 percent from February but down 9.5 percent from March 2021. At the end of March, there was a 2.0-month supply of homes on the market at the current sales pace.

According to NAR, the average home sold in March was on the market for 17 days, down from 18 days the previous month.

In March, Monique Nethercott and Grant Walker purchased a three-bedroom home in Springfield, Illinois. They paid $245,00 for a property that was listed for $225,000. They also sold Mr. Walker's home for $126,000 last month after receiving six offers on the first day of listing.

"In this market, you know there are a lot of offers," Ms. Nethercott explained. "You just have to accept that you'll have to pay more than what it's listed for."

Consumers are dissatisfied with the housing market. Renters polled by the New York Federal Reserve in February said they were 43.3 percent likely to buy a home in the future, down from 51.6 percent a year earlier and a record low in data dating back to 2014. In March, 24 percent of consumers polled by Fannie Mae said it was a good time to buy a home, down from 53 percent the previous year and a record low in data dating back to mid-2010.

The proportion of first-time buyers in the market fell to 30% in March, down from 32% a year earlier. According to the National Association of Realtors, approximately 28 percent of existing-home sales in March were paid in cash, up from 23 percent in the same month a year ago.

Last year, Jerusha Marquis and Jamie Ferguson decided to relocate from Arizona to Ohio in order to be closer to Mr. Ferguson's mother and to purchase a home, which they couldn't afford in Phoenix. Mortgage rates in Ohio rose from 3.75 percent to above 4 percent during the month and a half they looked for a home to buy.

"We were completely freaked out," Mr. Ferguson admitted. "We just assumed it wasn't going to be our time."

They ended up purchasing a ranch house in Ontario, Ohio, for $218,500 with a 4% interest rate in March, and they plan to move in June. "We feel very fortunate," Mr. Ferguson said.

Existing-home sales fell 4.5 percent month over month in the Midwest, and 3 percent in the South.

Because of the high demand, construction activity has increased, but builders have been slowed by supply-chain issues and labor shortages. The Commerce Department reported this week that housing starts, a measure of home construction in the United States, increased 0.3 percent in March compared to February. Residential permits, which can be a leading indicator of future home construction, increased by 0.4 percent.