As I previewed, US existing home sales surprised downward in March, hitting a 7-month low. According to the National Association of Realtors (NAR), they decreased by 3.7% MoM, reaching 6.11M (down from 6.24M prior).

As I already noted, the decline can be explained by several factors such as lower affordability and the lack of supply. In addition, adverse weather conditions also weighed on transactions.

1. Demand has been affected by a deterioration of housing affordability

Housing affordability has been under pressure since January. On one hand, mortgage rates started rebounding with the 30-year recently hitting the highest level since June 2020 in late March. On the other hand, prices kept climbing at a fast rate. The NAR highlighted that “The median existing-home price for all housing types in March was $329,100, up 17.2% from March 2020 ($280,700), as prices increased in every region. March’s national price jump marks 109 straight months of year-over-year gains.” Other reports confirmed that prices skyrocketed in March. Redfin highlighted “The national median home-sale price hit a record high of $353,000, up 17% from 2020, a record high rate of growth.“

2. Lack of supply kept weighting on housing transactions

One of the recent development related to the the housing market has been the collapse in inventory, which pushed prices upward. The NAR underlined “Total housing inventory at the end of March amounted to 1.07 million units, up 3.9% from February’s inventory and down 28.2% from one year ago (1.49 million). Unsold inventory sits at a 2.1-month supply at the current sales pace, marginally up from February’s 2.0-month supply and down from the 3.3-month supply recorded in March 2020. Inventory numbers continue to represent near-historic lows; NAR first began tracking the single-family home supply in 1982.” This pattern was sometimes cited as a dampening factor on sales.

In my opinion, the collapse in inventory is likely to remain a drag in the short term. However, I think that existing home sales should rebound in April supported by weather normalization. In addition, the recent decline in mortgage rates could help EHS to recover from May.