Existing home sales declined in February as tight inventory and rising prices frustrated would-be buyers and damped sales activity heading into the critical spring selling season.
Purchases of previously owned homes, which account for the vast majority of U.S. sales, decreased 3.7% from January to a seasonally adjusted annual rate of 5.48 million last month, the National Association of Realtors said Wednesday.
The decline followed a strong performance in January, when sales rose 3.3%. February’s sale pace was 5.4% above the same month a year earlier.
Economists said the combination of rising prices and mortgage rates is expected to push some buyers out of the market this year, especially in expensive coastal markets where first-time purchasers are already stretching to afford homes.
“You either have to believe that we’re in a bubble right now or you have to believe that sales are going to decline,” said Todd Tomalak, vice president of research at John Burns Real Estate Consulting.
Nela Richardson, chief economist at Redfin, said the company has seen a slight decline in the number of buyers touring properties and making offers—indicating they are frustrated by a lack of homes for sale.
“Inventory may be having a bigger effect on sales [this year] than last year,” Ms. Richardson said. “It’s just there’s not a lot for sale.”
Inventory increased 4.2% at the end of February from a month earlier, after December’s reading was the lowest since the Realtors association began tracking all types of supply in 1999. Inventory in February was still down 6.4% from a year earlier. At the current sales pace, it would take 3.8 months to exhaust the supply of existing homes on the market, the Realtors said Wednesday. Economists say the typical supply is roughly six months.
“We just don’t have enough inventory to satisfy all the buying interest,” said Lawrence Yun, chief economist at the National Association of Realtors.
Low inventory is also helping to push up prices. The median sale price rose 7.7% in February from a year earlier, to $228,400. Experts said rapid price increases are creating concerns about affordability.
“I would be happier if it was not as frothy,” said Greg Rand, founder and chief executive of OwnAmerica, a broker for investors in single-family rental properties.
Economists said the rise in mortgage rates that began in December may have caused some buyers to rush into the market to lock in lower rates, pushing forward some demand. Rates for a 30-year mortgage rose to 4.3% last week, the highest level this year, according to mortgage company Freddie Mac.
New home construction is starting to pick up, which could relieve some of the inventory crunch in the coming months. U.S. single-family housing starts in February hit their highest level since the recession, boosted by warm weather and a strong economy.