The supply/demand imbalance pushed average home prices to a record high of $344,000.
By Manuel Gutierrez, Consulting Economist to NKBA
Sales of existing homes took a sharp turn downward in February, falling 6.6% to an annual rate of 6.22 million homes sold (Figure 1). This is the lowest level of home sales since last August. Sales continue to remain above pre-pandemic levels, however. In fact, other than rates experienced in recent months, the last time monthly sales activity was higher than February’s level was in December 2006, which recorded an annual run rate of 6.4 million units.
Very rarely are monthly declines of this magnitude seen outside of economic recessions, such as in 2007-2009.
Last month’s drop was driven primarily by two factors: the extremely cold weather in many parts of the country and the unusually low inventory of houses for sale.
Historically low inventories coupled with high demand led to record average home sales prices in February.
Demand for housing remains strong despite sales declines. The heavier demand is corroborated by the NAHB/Wells Fargo Housing Market Index. The index increased modestly in February, suggesting a modest uptick in demand for housing that month.
At February’s end, there were just over 1 million homes for sale nationally — a historically low number (Figure 2). That figure remained the same as in January, as available inventory was stable.
Inventory for single-family homes also was at the same levels as in January, with 870,000 homes available. The overall numbers shown in Figure 2 also include condominium units.
At the current inventory level and sales rates of February, the supply would be depleted in just two months. Although this is an improvement over January, when the supply was at 1.9 months (Figure 2, right panel,) it is still extremely low compared to previous periods. For instance, last May, just 10 months ago, the supply stood at levels that could last for 4.6 months — well over twice current conditions.
Tight supplies combined with strong demand continue to put upward pressure on home pricing. As a result, the average sales price of an existing home hit a record $344,000 in February, up a hefty 12.6% from a year ago.
The right panel of Figure 3 displays the price change for every year since 2000. As can be seen, for the 12 months ended in February, the YOY price spike of 12.6% is the highest annual jump this century.
Decreases in three of the four U.S. regions drove the national home sales rate down in February (Figure 4), with both the Midwest and the Northeast off by double-digits. The Midwest had the biggest decline, falling by 14.4% to an annual rate of 1.31 million units. Sales in the Northeast, which fell by 11.5% to a rate of 770,000 units, are the lowest in six months.
The South suffered a more modest sales decline of 6.1%, to an annual rate of 2.77 million units. Despite this drop, home sales in the South remain within a historically high range.
The West was the only region to enjoy a sales gain in February, with an increase of 4.6% to an annual rate of 1.37 million units.
