Inventories Are Increasing

• Sales of existing homes for a second straight month in March and are down 11% from January. Higher mortgage rates are weighing on housing demand.
• The inventory of existing homes for sale rose in March.
• Price growth slowed in March but was still 15% year-over-year.
• The housing market will slow over the rest of 2022 because of higher mortgage rates.

Sales of existing homes fell to 5.77 million at a seasonally adjusted annualized rate in March, according to the National Association of Realtors. This was down from 5.93 million in February and was the second straight monthly decline. Sales have fallen 11% since peaking at 6.49 million in January. Sales were flat in the West from February to March and fell over the month in the Northeast, Southeast, and Midwest.

Inventory of existing homes for sale rose 12% in March from February to 950,000. This is 2.0 months’ supply at the existing sales pace, up from 1.7 months in February. Although inventories loosened somewhat in March, they are still much tighter than the around 3 months of supply before the pandemic.

The median sale price of an existing home rose to $375,300 in March, up from $359,300 in February (not seasonally adjusted). On a year-over-year basis, the median sale price was up 15.0% in March, compared to 15.7% price growth in February.

Higher mortgage rates appear to be weighing on the housing market. Sales of existing homes have fallen by 11% over the past two months at the same time the typical 30-year fixed mortgage rate has risen from 3.4% to 4.2%. With the 30-year rate up to 5.0% in mid-April, housing sales are likely to fall further over the next few months.

Higher inventories and rising mortgage rates will lead to slower house price growth over the next couple of years. National prices are unlikely to decline outright, however, as the market remains undersupplied, underlying demand is still solid, and consumer balance sheets are generally solid. Prices could decline in some markets that have experienced especially rapid price growth in recent years, however.

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