US Existing Home Sales Soar to 1-Year High

Sales of previously owned US homes saw a remarkable surge in February, hitting the fastest in a year, indicating a market adjustment to higher mortgage rates. According to National Association of Realtors data, contract closings rose 9.5% from the previous month, reaching an annualized rate of 4.38 million, surpassing economists’ expectations. This uptick suggests a break from the prolonged slump experienced due to high mortgage rates, which deterred homeowners from relocating. However, more are listing their properties, leading to the highest February inventory since 2020.

Despite the increase in inventory, demand remains robust, driving up prices. The median selling price climbed by 5.7% to $384,500 from a year ago, marking the highest for any February on record. Cash sales accounted for a significant portion of transactions, with investors and second-home buyers making up 21% of the market. However, first-time buyers remained at 26% of purchases, matching the lowest on record. While sales showed improvement across most regions, with the West leading with a 16.4% surge, the market continues to grapple with tight supply and elevated prices amidst strong demand.

Lock-In Effect Impacts Housing Market: FHFA Research

A recent study by researchers at the Federal Housing Finance Agency (FHFA) sheds light on the significant impact of the “lock-in effect,” where homeowners with lower mortgage rates are hesitant to sell and buy another home at higher rates. This effect has led to a staggering 1.3 million lost home sales between Q2 2022 and Q4 2023, significantly reducing mobility and exacerbating inequalities in the housing market. With nearly all active mortgages in the US featuring fixed rates, the reluctance to sell due to lower rates has led to a 57% reduction in home sales with fixed-rate mortgages in Q4 2023 alone, preventing millions of potential transactions.

Moreover, the FHFA research indicates that the lock-in effect has contributed to an upward pressure on national home prices. The reduction in housing supply resulting from homeowners staying put due to lower rates has increased home prices by 5.7%, outweighing the direct impact of elevated mortgage rates. Despite a slight increase in new listings in February 2024 compared to the previous year, suggesting a potential easing of the lock-in effect, FHFA researchers caution that without a significant decrease in mortgage rates, this phenomenon is likely to persist for the foreseeable future, impacting housing market dynamics and affordability.

US Homebuyers’ $10,000 Savings Expectation Meets Reality

US homebuyers anticipating substantial savings from the National Association of Realtors’ (NAR) settlement over agent commissions might face disappointment, as experts caution that the actual benefits remain uncertain, particularly for first-time buyers. The settlement agreement, which garnered praise from President Joe Biden and former Treasury Secretary Larry Summers, addresses concerns over-inflated costs and bad incentives in the housing market. However, with the intricacies of how changes will ripple out and impact the market still unclear, there’s heated debate surrounding the potential outcomes.

While the settlement could prompt negotiations for lower commissions and potentially lead to reduced home prices, the true extent of these effects remains to be seen. Moody’s Analytics Chief Economist Mark Zandi predicts a gradual decrease in commissions, with sellers likely to capture most of the gains, resulting in minimal impact on home prices. Amidst speculation about how the changes will unfold, industry experts stress the need for adaptation and preparation for potential shifts in buyer-agent dynamics. Despite the settlement marking a significant step, many anticipate that substantial changes in the industry may not occur immediately, leaving room for ongoing uncertainty and speculation.