Home sales fell far more than expected in February, as mortgage rates rose and supply remained tight

In February, sales of previously owned homes fell 7.2% from the previous month to a rate of 6.02 million units.

Analysts had expectations of 6.13 million units. Compared with the same month a year ago, sales were lower. The numbers were not very impressive due to rising mortgage rates.

The sales count is based on closings, which means that the homes went under sale contract in December and January. Mortgage rates were relatively low in December, with the average rate on the popular 30-year fixed loan hovering around 3%, according to Mortgage News Daily. By the end of the month, the rate had risen to 3.68%. The rate has gone up to 4.5%.

It will be interesting to observe what will happen in the coming months as mortgage rates make a much more meaningful jump.

The bigger issue in housing today is very low supply, which is why some of the sales figures were likely affected by rising rates. There were more homes on the market in February than in January, but there were less homes for sale at the end of the month. The 1.7-month supply is close to an all-time low.

Strong demand and tight supply pushed prices higher. The median price for an existing home sold in February was $357,300, an increase of 15% from a year ago.

The mix of homes that are currently for sale and the price range where sales are most prevalent affect the price. The lower end of the market has the lowest supply. The sales of homes priced between $100,000 and $250,000 fell. The sales of homes priced between $750,000 and $1 million increased. Sales of homes priced over $1 million went up 21%.

Competition for the limited supply of homes for sale is fierce again. 18 days is the time when homes are going under contract. According to a new report, 68.6% of home offers written by Redfin agents faced bidding wars. That was the highest level since April 2020.

Bidding wars intensified this year after rates started spiking. Competition will likely decline if rates keep increasing. Some buyers will move to the sidelines.

Competition from investors is high for regular homebuyers. In February, the investor share of sales was 19%.

First-time buyers made up 29% of the market, a slight gain from January but well below the historical average of 40%. Buyers are paying 28% more on their monthly payments than they would have done a year ago because of current mortgage rates and higher home prices.

Danielle Hale, chief economist, said that she expects home sales to remain high throughout 2022, as homebuyers get creative about how to spend their housing budget amid rising prices of competing expenses.