There are not enough homes for sale and, as a result, pending home sales plunged 10.6% in February, marking the second straight month of declines, according to the National Association of Realtors. Following eight months of consecutive year-over-year gains, pending home sales in February decreased by 0.5% year-over-year.
The data comes as housing inventory reached a record low of 1.03 million units as of the end of February, a 29.5% year-over-year decline compared to 1.46 million units, marking the sharpest yearly drop since NAR began collecting home inventory data in 1982. At the current sales pace, it would take two months to exhaust the supply, slightly above 1.9 months in January but below 3.1 months recorded a year ago.
However, demand for housing is strong with properties selling after an average of 20 days on the market, the fastest pace on record, compared to 21 days in January and 36 days in February 2020.
Home prices are also accelerating at a record pace, with the S&P CoreLogic Case-Shiller National Home Price index rising 11.2% in January, compared to 10.4% the previous month, marking the highest annual rate of price growth since February 2006. The Case Shiller 20-city index posted an 11.1% year-over-year gain, up from 10.2% in the previous month, the largest jump since March 2014, while the 10-city index an annual increase of 10.9%, compared to 9.9% in the previous month.
“The demand for a home purchase is widespread, multiple offers are prevalent, and days-on-market are swift but contracts are not clicking due to record-low inventory,” NAR chief economist Lawrence Yun said. "Only the upper-end market is experiencing more activity because of reasonable supply."
He also noted that demand does not appear to be impacted by the recent rise in mortgage rates. The average rate on a 30-year fixed mortgage rose to nearly 3.2% last week, the highest since June, up from 3.1% the week before. That’s still below the pre-pandemic rate of 3.5%
Even with the rising mortgage costs, Yun expects rates to remain relatively low at no more than 3.5% in 2021, which are "still advantageous to both prospective buyers and to current homeowners who are contemplating refinancing."
Homes priced above $250,000 have largely driven home sales across the nation over the last several months, but Yun believes homes priced above $500,000 and less then $1 million are beginning to see similar low inventory problems.
“Potential buyers may have to enlarge their geographic search areas, given the current tight market,” Yun added. “If there were a larger pool of inventory to select from – ideally a five- or a six-month supply – then more buyers would be able to purchase properties at an affordable price.”
Each of the four major U.S. regions witnessed month-over-month declines in February, while results were mixed in the regions year-over-year.
In the Northeast, pending home sales fell 9.2% month-over-month and 3.9% year-over-year, while the Midwest dropped 9.5% month-over-month and 6.1% year-over-year. Meanwhile, pending home sales transactions in the South fell 13% month over month but were up 2.9% year-over-year and the West region fell 7.4% month-over-month but were up 1.9% year-over-year.
The Associated Press contributed to this report.