Existing home sales dropped 6.6 percent in February after two months of gains, according to the National Association of Realtors. New home sales dropped 18.2 percent in February to 775,000 from January’s revised rate of 948,000, according to the U.S. Census Bureau and the Department of Housing development.
The decline is in part due to a supply struggle, as demand has left only two months of inventory to the market, according to the NAR. Overall, existing home sales increased 9.1 percent from what they were last year. All four U.S. regions saw year-over-year gains.
“Despite the drop in home sales for February — which I would attribute to historically-low inventory — the market is still outperforming pre-pandemic levels,” said Lawrence Yun, NAR’s chief economist.
Yun predicted a potential downturn in growth in the coming months as increasing prices and mortgage rates could cut into home affordability. He remains optimistic that this year’s sales will be ahead of last year’s, however, as vaccinations are increasingly distributed and made available.
“Many Americans have been saving money and there’s a strong possibility that once the country fully reopens, those reserves will be unleashed on the economy,” Yun said.
The median sales price of new houses sold in February was $349,000, and the average sales price was $416,000, according to Census and HUD data. The median existing home price for all housing types this February was $313,000, which is 15.8 percent higher than last February, which was $270,400, according to the NAR. February’s existing-home price hike is the 108th consecutive month of year-over-year gains.
On the builders’ side of the market, confidence in multifamily construction declined in the fourth quarter of 2020 as lumber prices continued to increase, according to the National Association of Home Builder’s multifamily market survey.
The Multifamily Production Index, which measures builder and developer sentiment, declined five points to 43 from the previous quarter. A reading below 50 indicates that more respondents reported declining conditions than improving conditions. The Multifamily Vacancy Index declined two points to 42, with smaller numbers indicating fewer vacancies.
Builder uncertainty can in part be attributed to the impact of the eviction moratorium and other restrictions on owners of rental properties, “making developers cautious about starting new multifamily projects in certain parts of the country,” said Justin MacDonald, chair of the NAHB’s multifamily council.
NAHB’s Chief Economist Robert Dietz said the decline in the MPI index points to lower multifamily activity at the end of last year, when production fell 9 percent from the third to fourth quarter. “Building material delays and increased costs, especially lumber, have become serious headwinds for builders and developers,” Dietz said.
And for consumers, home affordability is weakening, NAR’s Yun said. “Various stimulus packages are expected and they will indeed help, but an increase in inventory is the best way to address surging home costs.”
The NAR’s 2021 Home Buyers and Sellers Generational Trends Report, which highlighted some effects of the increasing prices, recognized the challenge buyers face when saving enough money for a down payment.
Freddie Mac’s recent research on consumer confidence in the housing market, released March 22, found that renters and homeowners remain uncertain about their ability to pay their rent or mortgage. However, the research also suggested that despite the economic pressure of the pandemic, confidence has improved since the all-time high of October and November last year, when more than 70 percent of those surveyed expressed concern about their ability to make their payments.
Three months later, in February, 41 percent of surveyors expressed that same concern, and confidence in the housing market improved to 66 percent from 61 percent in January. While homeowners and renters continue to struggle financially, 72 percent of respondents who are currently employed expressed confidence that they will maintain the same level of income throughout the first half of the year. More than 40 percent of respondents were living paycheck to paycheck in February, and 17 percent didn’t have enough for the basics until their next payday, according to the Freddie Mac report. Forty percent of respondents said they had the means to support themselves beyond payday.
However, according to the Mortgage Bankers Association and the Research Institute for Housing America’s recent research report released on March 18, affordable housing is continuing to be a disproportionately growing challenge for low- and moderate-income renters in the country’s top 50 metro areas.
“The ongoing COVID-19 pandemic has exacerbated the affordable housing challenges that were already impacting far too many low- and moderate-income households,” said Steve O’Connor, MBA’s senior vice president for affordable housing initiatives.
Regarding the pandemic’s continuing effect on forbearance, as of March 14, the total number of loans in forbearance decreased by nine basis points to 5.05 percent from 5.14 percent of servicers’ portfolio volume the previous week, and down to its lowest level since last March, according to the MBA’s most recent Forbearance and Call Volume Survey. The association estimated that 2.5 million homeowners are in forbearance plans.
“Combined with a steady pace of exits, this drop in new requests resulted in a larger decline in the share of loans in forbearance across all investor categories,” said Mike Fratantoni, MBA’s senior vice president and chief economist. “More than 11 percent of borrowers in forbearance have now exceeded the 12-month mark. We anticipate that servicers will be busy over the next month, with many homeowners opting for the extension for up to 18 months recently made available for federally-backed loans.”
Of the cumulative forbearance exits since the beginning of June last year, according to the MBA, more than a quarter were borrowers who continued to make their monthly payments during their forbearance periods. Another quarter resulted in a loan deferral or partial claim. Roughly 15 percent resulted in reinstatements, in which overdue amounts were paid back when exiting forbearance, and another 14 percent were borrowers who did not make their monthly payments and exited forbearance without a loss mitigation plan yet in place. About 8 percent resulted in loan modification or trial loan modification, and 7.6 percent resulted in loans paid off through either a refinance or selling the home. The remaining 1.8 percent resulted in repayment plans, short sales, deed-in-lieus or other reasons, the MBA said.
The MBA’s forbearance and call volume survey represented about three quarters of the first-mortgage servicing market.