After increasing to the highest annual rate in six months, existing-home sales tumbled in February amid unshakably low supply levels and steadfast price growth in several sections of the country.
The National Association of Realtors (NAR) reported that all four major regions experienced sales declines last month with the Northeast and Midwest parts of the U.S. experiencing the deepest sales drops.
Total existing-home sales -- which are completed transactions that include single-family homes, townhomes, condominiums and co-ops -- dropped 7.1% to a seasonally adjusted annual rate of 5.08 million in February from 5.47 million in January. Despite last month's large decline, sales are still 2.2% higher than a year ago.
Lawrence Yun, NAR chief economist, said existing sales disappointed in February and failed to keep pace with what had been a strong start to the year.
"Sales took a considerable step back in most of the country last month, and especially in the Northeast and Midwest," he said. "The lull in contract signings in January from the large East Coast blizzard, along with the slump in the stock market, may have played a role in February's lack of closings."
"However," he added, "the main issue continues to be a supply and affordability problem. Finding the right property at an affordable price is burdening many potential buyers."
According to Yun, job growth continues to hum along at a robust pace, but there appears to be some uneasiness among households that the economy is losing some steam.
This was evident in NAR's latest quarterly HOME survey that was released earlier this month revealing that fewer respondents believe the economy is improving. However, a smaller share of renters said that now is a good time to buy a home.
"The overall demand for buying is still solid entering the busy spring season, but home prices and rents outpacing wages and anxiety about the health of the economy are holding back a segment of would-be buyers," Yun said.
The median existing-home price for all housing types in February was $210,800, up 4.4% from February 2015 ($201,900). February's price increase marks the 48th consecutive month of year-over-year gains.
Total housing inventory at the end of February increased 3.3% to 1.88 million existing homes available for sale, but it is still 1.1% lower than a year ago (1.90 million). Unsold inventory is at a 4.4-month supply at the current sales pace, up from four months in January.
All-cash sales were 25% of transactions in February, down from 26% both in January and a year ago. Individual investors, who account for many cash sales, purchased 18% of homes in February (17% in January), matching the highest share since April 2014. Almost two-thirds of investors paid cash in February.
"Investor sales have trended surprisingly higher in recent months after falling to as low as 12% of sales in August 2015," Yun noted. "Now that there are fewer distressed homes available, it appears there's been a shift towards investors purchasing lower-priced homes and turning them into rentals. Already facing affordability issues, this competition at the entry-level market only adds to the roadblocks slowing first-time buyers."
The share of first-time buyers fell to 30% in February (matching the lowest share since November 2015) from 32% in January, but is up from 29% a year ago. First-time buyers in all of 2015 represented an average of 30%.
According to Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage declined from 3.87% in January to 3.66% in February, which is the lowest since April 2015 at 3.67%. The average commitment rate for all of 2015 was 3.85%.
Properties typically stayed on the market for 59 days in February, a decrease from 64 days in January and below the 62 days in February 2015. Short sales were on the market the longest at a median of 126 days in February, while foreclosures and non-distressed homes each took 57 days. About 35% of homes sold in February were on the market for less than a month.
NAR president Tom Salomone, broker-owner of Real Estate II Inc. in Coral Springs, Fla., said many Realtors are saying that instances of multiple bids and affordable homes going under contract quickly are common in their markets.
"With low supply this spring buying season, it's easy for buyers to get discouraged when their offer is rejected in favor of a higher bid," he said. "That's why it's important for buyers to stay patient and work with a Realtor to develop a negotiation strategy that ensures success without overstretching their budget."
Matching the highest share since May 2015, distressed sales, foreclosures and short sales rose slightly to 10% in February, up from 9% in January but down from 11% a year ago. In all, 7% of February sales were foreclosures and 3% were short sales. Foreclosures sold for an average discount of 17% below market value in February (13% in January), while short sales were discounted 16% (12% in January).
Single-family home sales fell 7.2% to a seasonally adjusted annual rate of 4.51 million in February from 4.86 million in January, but they are still 2% higher than the 4.42 million pace a year ago. The median existing single-family home price was $212,300 in February, up 4.3% from February 2015.
Existing condominium and co-op sales decreased 6.6% to a seasonally adjusted annual rate of 570,000 units in February from 610,000 in January, but are still 3.6% above February 2015 (550,000 units). The median existing condo price was $198,900 in February, which is 5.1% above a year ago.
February existing-home sales in the Northeast descended 17.1% to an annual rate of 630,000, but are still 5% above a year ago. The median price in the Northeast was $239,700, which is 0.8% below February 2015.
In the Midwest, existing-home sales sank 13.8% to an annual rate of 1.12 million in February -- unchanged from February 2015. The median price in the Midwest was $162,700, up 6.3% from a year ago.
Existing-home sales in the South decreased 1.8% to an annual rate of 2.20 million in February, but they are still 3.3% above February 2015. The median price in the South was $186,400, up 5% from a year ago.
Existing-home sales in the West declined 3.4% to an annual rate of 1.13 million in February but still 0.9% higher than a year ago. The median price in the West was $308,800, which is 7% above February 2015.