The National Association of Realtors reported that the annual sales pace of existing homes declined 0.2% last month to a seasonally adjusted annual 4.59 million. But March’s result beat a consensus among economists who had expected a sales rate of 4.55 million, compared with a pace of 4.6 million in February.
Indeed, the broader market responded well to the data, with the Dow Jones Industrial Average sporting a gain of about 0.5% in mid-morning trade. The SPDR S&P Homebuilders ETF also was stronger.
For context, there was an average monthly sales pace of more than 6 million existing homes over the five years leading up to a 2005 bubble peak.
Sales rates have trended down since the summer on falling affordability as inventory remained low, and there’s been concern about tepid spring-sales results. Some buyers have been put off by rapidly rising prices. According to NAR, the median sales price of used homes hit $198,500 in March, up 7.9% from the year-earlier period. Elsewhere Tuesday, a federal housing regulator reported that home prices in February were up almost 7% from the year-earlier period.
Unusually rough weather in recent months likely also curbed some demand, though regional sales results for March show gains in the Northeast and Midwest, according to NAR. New mortgage rules for borrowers and lenders are likely also curbing some deals, analysts say.
“At least part of the net weakening likely reflects weather effects, although, even without weather effects, sales have clearly slowed since early last year,” Jim O’Sullivan, chief U.S. economist at High Frequency Economics, wrote in a research note.
In addition, banks have high hurdles for borrowers to obtain a mortgage, conditions that are particularly tough for would-be first-time buyers and younger families. Some economists worry that as institutional investors scale back their purchases, with foreclosures and ultra-cheap deals thinning out, first-time buyers won’t fill the gap .
Over the last several business days, economists at both Fannie mae and Freddie Mac , the federally controlled mortgage-finance giants, cut their forecasts for the housing market’s performance in 2014. Fannie reduced its outlook for new-home construction, while Freddie lowered its view for home sales.
2014 won’t be a wipeoutDespite home-sales weakness in the first quarter of this year, economists don’t think 2014 will be a wipeout.
“Although the string of negative readings suggests the recovery has stalled, the underlying details are more supportive,” Wells Fargo Securities economists wrote in a research note.
Recent drops in the sales pace of existing homes have been relatively small, signaling that the market may be stabilizing and sales could bounce higher in coming months, Lawrence Yun, NAR’s chief economist, told reporters Tuesday. Projects and purchases delayed by bad weather could show up in coming housing reports.
“Negative housing momentum, which was exacerbated by severe weather conditions during the winter months, may be starting to fade...We expect positive underlying fundamentals to begin reasserting themselves, helping to drive a rebound in housing market activity over the coming months,” Gennadiy Goldberg, U.S. strategist at TD Securities, wrote in a research note.
And here are a couple of bright points in Tuesday’s home-sales data:
—First-time buyers’ share of existing-home sales rose to 30% last month, up from 28% in February. The long-term average is closer to 40%.
—Distressed properties’ share of existing-home sales fell to 14% in March from 16% in February.
“With sales essentially flat and distressed sales down, conventional sales in the existing market actually rose. This is a sign that conditions continue to slowly normalize in housing and that should mean better new home sales over time,” Neil Dutta, head of U.S. economics at Renaissance Macro Research, wrote in a research note.
And while dropping affordability will continue to trim some sales, mortgage rates have declined in recent weeks and do remain relatively low. Going forward, economists expect home-price growth to slow down, while banks ease standards for loans.
On Wednesday, markets will get a look at sales of new single-family homes, and economists expected a seasonally adjusted annual rate of 450,000 in March, compared with a 440,000 pace in February .