Existing Home Sales Take a Positive Turn

After a year of slumping home sales, market experts are seeing some positive signs that suggest a turnaround may be headed our way. This could be good news for home sellers and real estate investors waiting to enter the market. The activity could also spur local economies and help mortgage rates drop slightly.

Home sales rise by double-digits

In February 2023, according to the National Association of Realtors (NAR), existing home sales nationwide jumped 14.5%. That ended a 12-month dip in sales activity. Before then, the most significant monthly percentage jump had been in 2020 during the height of the pandemic when existing home sales leaped 22.4%.

But it’s worth noting the context. One year before the February 2023 jump, sales activity had decreased by about 22.6% for existing homes. So is this early spring increase just the bounce at the end of a long drop or the start of increasing activity for existing home sales?

Why home sales slumped

Given that interest rates more than doubled throughout 2022, it’s no wonder we saw an extended slump in existing home sales. Higher interest rates meant homeowners with mortgages were more likely to feel motivated to keep their house. Why sell a $300,000 house for another $300,000 house if the interest rates on the new mortgage would double? It was easier for many to stay in their existing homes.

Lawrence Yun, Chief Economist at NAR, said that might have caused the sluggish existing home sales numbers over the past year. From February 2022 to February 2023, sales fell 22.6% when looking at existing homes’ seasonally adjusted annual rates.

Plus, homebuyers were more reluctant to apply for a mortgage when a 1% change in rate meant paying out thousands more over the life of the loan. It also increased their monthly payments, making buying less affordable.

Lower rates lead to sales rebound

So why did existing home sales take a positive turn to start off 2023 even as mortgage rates remained high? According to Yun, homebuyers are typically tracking changing mortgage rates. Any slight dip in current rates can represent an opportunity for homeowners who want to move. And, those rates did dip in early January 2023 and through February. Even now, the 30-year fixed-rate decreased to 6.27% as of April 13, 2023, almost a full percent than the 7.08% average in fall 2022, which could encourage a persisting rebound in early 2023.

Yun also pointed out that regional differences may explain changes in existing home sales numbers. For example, suppose the local economy is adding jobs. In that case, it suggests that local homeowners might feel more confident about their ability to buy a new home. That’s where the stronger existing home sales can be found.

Existing home sales by region

According to the Canopy Realtor Association, new listings in Charlotte, NC, decreased by 18.3% from 2022 to 2023. Pending sales were also down (8.3%), while the number of days from list-to-close increased from 80 to 102 days on average. The inventory supply also doubled, moving from 0.6 months’ worth to 1.2 months.

Numbers were similar in Asheville, NC. New listings declined by 23.3%, pending sales went down by 15.8%, and inventory supply increased from 1.1 months to 1.6 months. This contributed to why the median price of homes in Asheville increased from around $350,000 to over $375,000.

In Florida, fewer homes were sold in February 2023 than in February 2022, decreasing by 21.3% from year-over-year. New listings were down 12.6%.

Throughout all three of these regions, we see the opposite of what’s being reported nationwide. The effects of high-interest rates are driving down home sales and encouraging owners to stay in place while sustained demand is increasing prices on existing homes. It’s making it difficult for new home buyers to break into the market.

Existing home sales may remain down

The NAR assessed inventory and relative seasonally-adjusted changes to provide an estimate of how many existing homes had been sold on the market between different time periods, like February 2022 to February 2023.

According to NAR, the total housing inventory at the end of February 2022 was 980,000 units, roughly equal to January. That number increased by 15.3% from the same month the year prior. NAR also projected a 2.6-month supply if the February sales pace was maintained, meaning it would take that long to sell all the homes currently listed on the market.

The conclusion? Yun pointed out that inventory levels are still relatively low nationwide. As mortgage rates increased in 2022, many homeowners felt it was best to sit on their current mortgages, presumably to preserve their current low rates. They were not motivated enough to consider moving unless absolutely necessary.

But as homeowners get used to the idea that the days of mortgage rates under 4% are gone, and the currently high rates come down a little bit, sales activity could rebound. Slowing home price gains would also help, as would increasing inventory.

No doubt being a homebuyer in the current market has been tough. In some high-demand markets, properties have seen the return of multiple offers simply because there’s not enough inventory out there.

And while some overpriced metros are experiencing price corrections, that change won’t be felt nationwide. If these market trends continue, the upward pressure on prices will exacerbate the affordability crisis present in some markets. This could potentially reverse or slow the trend of increased home sales as people are priced out of buying homes.

The Final Word on Future Home Sales

While the news from February’s data was encouraging, it suggests existing home sales could remain a bit stagnant until market conditions loosen up more. Achieving market balance will require a combination of economic factors. We need more homeowners to list their existing homes and for home buyers to have confidence in their buying power.

In the regional markets examined here, the lower availability of homes contributed to higher prices and declining sales. We may have to wait until interest rate conditions ease before we can expect to see more regions reporting an increase in home sales.