February home sales tumble ahead of key spring sales season

A house with a sign saying it is under contract to be sold is seen in a downtown Washington neighborhood.

Jim Bourg | Reuters

In a grim sign for the housing market’s busiest season, pending home sales, which measure signed contracts on existing homes, fell 4.1% in February from January, according to the National Association. of Realtors.

Sales were down 5.4% from February 2021. Analysts had expected a slight gain. This is the fourth consecutive month of falling pending sales, which are an indicator of future closings, in one to two months.

Since this tally is based on contracts signed in February, when mortgage rates really started to take off, this is a strong indicator of how the market is reacting to the new rate environment, especially as it enters the crucial spring season.

Rates started to rise in January and continued their strong rise in February. The average 30-year fixed mortgage rate is now more than a percentage point higher than it was a year ago.

Regionally, pending sales were up 1.9% month over month in the Northeast, but down 9.2% from a year ago. In the Midwest, sales fell 6.0% for the month and 5.2% from February 2021. In the South, sales fell 4.4% month-to-month and 4.3% year-over-year. year, and in the West they were down 5.4% for the month and 5.3% from February 2021. a year ago.

Rising mortgage rates couldn’t have come at a worse time, as spring is historically the busiest season for the housing market.

“Most of my buyers are adjusting their goal to buy the home they can afford at higher rates,” said Paul Legere, a buyer’s agent with Joel Nelson Group in Washington, DC. a pronounced sense of urgency to lock in a mortgage rate and get into a property.In my market at least, buyers are not choosing to rent as an alternative.

Potential buyers today face an expensive market. The median monthly payment on a new mortgage now represents a much larger share of a typical consumer’s income. It jumped 8.3% in February from January, according to a new index from the Mortgage Bankers Association. It’s nearly 22% higher than it was in February 2021. For low-end borrowers, that monthly payment is up nearly 10% month-over-month.

“The 30-year fixed rate mortgage increased by 73 basis points from December 2021 to February 2022. As loan application amounts increase, the median principal and interest payment of a mortgage applicant in February was up $127 from January and $337 from a year ago,” said Edward Seiler, associate vice president of housing economics at the MBA.

Buyers continue to face a tight and expensive market. Now they have to account for inflation in other parts of their budget as well. List prices for homes have reaccelerated after a brief reprieve in the fall of last year, according to Realtor.com.

“As we enter the spring season, markets remain clearly tilted in favor of sellers,” said George Ratiu, senior economist at Realtor.com. “However, with mortgage rates approaching 5%, we are seeing the first signs of a shift in housing fundamentals as many house hunters have hit a ceiling on their ability to afford. offer a home.”

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