Sales of previously owned U.S. homes dropped more than forecast in February after reaching the second-highest level since 2007 as low inventory levels continue to limit progress in housing.
Closings on existing homes, which usually take place a month or two after a contract is signed, decreased 7.1 percent to a three-month low 5.08 million annual rate after a 5.47 million pace in January, the National Association of Realtors said Monday. Sales were weaker than the most pessimistic forecast in a Bloomberg survey of economists.
Faster growth in residential real estate is being hampered by a limited selection of available properties that has led to higher offering prices. While mortgage rates are attractive, affordability remains an issue for potential first-time and lower-income buyers whose participation would help broaden the market’s improvement.
“This number seems to suggest the trend may be a little weaker than we thought,” said David Sloan, senior economist at 4cast Inc. in New York. “Supply is fairly limited, so that is a restraint on sales.”
The median forecast of a Bloomberg survey of 70 economists called for 5.31 million, with estimates ranging from 5.15 million to 5.53 million.
Purchases of existing homes decreased in all four regions last month, led by a 17.1 percent slump in the Northeast and a 13.8 percent decline in the Midwest.
While a blizzard on the East Coast may have played a role in the drop in closings, the Realtors group said lack of supply and affordability are the bigger restraints.
“The question is, is this the beginning where homebuyers are beginning to show resistance to higher prices or is this a one-month fluke in the data,” Lawrence Yun, NAR chief economist, said at a news conference as the figures were released. “Now we are seeing fewer renters interested in buying. They’re indicating affordability is an issue.”
Compared with a year earlier, purchases increased 6.4 percent in February on an unadjusted basis. The number of existing properties on the market fell 1.1 percent to 1.88 million in February from 1.9 million a year earlier.
At the current pace, it would take 4.4 months to sell those houses compared with 4 months at the end of January. It was 4.6 months in February 2015.
The median time a home was on the market decreased last month to 59 days from 64 days in January.
In general, tight inventory levels have helped boost the values of homes on the market. The median price of an existing home rose to $210,800 from $201,900 in February 2015.
Higher prices are keeping homes out of reach for some first-time buyers. They accounted for 30 percent of all purchases, the report showed, compared to the 40 percent that is considered more typical.
Cash transactions accounted for about 25 percent of all purchases in February, according to the report. Sales of distressed property, including foreclosures, accounted for 10 percent of the total.
Existing home sales, which are tallied only when purchase contracts close, account for more than 90 percent of the residential market. A timelier barometer is new-home purchases, because they are tabulated earlier in the process, when deals are signed. That report is due from the Commerce Department on March 23.
Some relief from tight inventories may be in store in the months ahead, with a separate Commerce Department report showing last week that new-home construction rose more than forecast in February to a 1.18 million annualized rate. The gain was led by the strongest single-family home building in more than eight years.
Meanwhile low borrowing costs should continue to support the housing industry. Federal Reserve policy makers last week held off on raising interest rates and scaled back forecasts for how high they’ll go this year, citing the potential impact on the U.S. economy from weaker global growth and financial-market turmoil.
The average rate of a 30-year, fixed-rate mortgage was 3.73 percent in the week ended March 17, according to data from Freddie Mac. That’s little changed from 3.78 percent a year earlier and compares with a 3.31 percent rate reached in late 2012 that was the lowest in records back to 1971.
Still, builders remain cautious, with their confidence holding in March at a nine-month low as a measure of the six-month outlook decline to the weakest level in a year, according to a report from the National Association of Home Builders and Wells Fargo.