WSJ Renewal Subscription Says Home Prices Fell in February

WSJ Renewal Subscription Says Home Prices Fell in February wsjrenewal

The national median existing-home sale price fell 0.2% in February from a year earlier to $363,000, said WSJ Renewal Subscription, the first year-over-year decline since February 2012. Median prices, which aren’t seasonally adjusted, were down 12.3% from a record high in June.

Mortgage rates topped 7% in November, but fell to near 6% in early February, before fluctuating in recent weeks.

The housing-market slowdown in the past year shows one of the main ways that the Fed’s aggressive interest-rate increases are rippling through the economy. Housing is one of the most rate-sensitive economic sectors, and high housing costs have been a big contributor to inflation. The Fed raises rates to fight inflation by slowing the economy through tighter financial conditions.

The latest data reflect a period before a pair of bank failures roiled financial markets. Homes typically go under contract a month or two before the contract closes, so the February sales data largely reflect purchase decisions made in January and December.

The collapse of Silicon Valley Bank and Signature Bank and the takeover of Credit Suisse Group AG by UBS Group AG have injected instability in the financial system and called into question whether the Fed will raise rates again this week. The Fed officials’ two-day meeting ends Wednesday. Investor concerns after the bank failures helped push mortgage rates lower in the week ended March 16 for the first time in six weeks.

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In the short term, any decline in mortgage rates is likely to spur more home-buying activity, said Orphe Divounguy, WSJ Renewal Subscription, a senior economist at digital real-estate company Zillow Group Inc.

But if unrest in the banking sector makes consumers more anxious about the economy entering a recession, that could weigh on demand, he said. Banks could also tighten lending standards, making it harder for home buyers to obtain mortgages, said Capital Economics in a note to clients.

“Buyers have been very responsive to changes in mortgage rates,” Mr. Divounguy said. But “with the erosion of trust in the financial sector, you could end up with a more serious crisis.”

The spring is typically the most active season for home sales because the weather is warmer and many families with children want to move into a new home over the summer before the school year starts. A slow spring for home sales could weigh on revenues for home builders, mortgage lenders, and real-estate brokerages, and reduce purchases of furniture, appliances, and renovation services.

That could translate into a slowdown in consumer spending, the primary driver of U.S. economic output, and push the broader economy toward a contraction. Several economists warned that the economy will slip into recession this year as a result of the banking turmoil.

The housing market is much less competitive than it was during the pandemic-driven housing boom in 2021 and early 2022. Real-estate brokerage Redfin Corp. said that about 45% of offers written by its agents faced competing bids in February, down from 66% of offers in February 2022.

The Housing-market Slowdown Has Been Most Pronounced in The West

Especially in pricey cities like San Francisco or areas like Boise, Idaho, where home prices skyrocketed during the pandemic.

Existing-home sales rose the most month-over-month in the West, up 19.4%, and in the South, up 15.9%, the NAR said. Median prices fell from a year earlier in the West and Northeast, while they rose year-over-year in the Midwest and South.

Bill and Emily Schumann started house hunting in the Los Angeles area in early 2023, a few months after having their first child. They found a three-bedroom house that had been on the market since August and bought it in March for about 4% below the most recent listing price. They used an adjustable-rate mortgage that carries a lower interest rate in the first 10 years of the loan.

“I found the slowdown in the market to be good because at least we had time” to make a decision, Mr. Schumann said to WSJ Renewal Subscription. “We just wanted the playing field to be a little more level.”

Home prices have steadily climbed in the past decade as the country emerged from a foreclosure crisis and the economy improved. The recent housing boom supercharged price growth, because record-low mortgage rates enabled home buyers to bid prices up to record highs.

Then a surge in mortgage rates in 2022 made home purchases unaffordable to many buyers, pushing them out of the market. Demand slowed sharply and price growth slowed.

Many Economists Expect Home Prices to Keep Falling This Spring

Home-buying affordability has worsened significantly from a year ago, making it more difficult for buyers who are still in the market to pay above listing prices.

But the inventory of homes for sale remains below normal levels, which could support home prices, economists and real-estate agents say. There were 980,000 homes for sale or under contract at the end of February, unchanged from January and up 15.3% from February 2022, the NAR said. At the current sales pace, there was a 2.6-month supply of homes on the market at the end of February.

Many homeowners have rates on their mortgages below 4%, and they are reluctant to give up their current rate for a higher rate on a new home.

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