After months of consistent, sometimes steep declines, signs are emerging that the nation’s enduring inventory shortage may be starting to ease. Slightly more than 960,000 homes were listed for sale at some point in the month of March – the fewest in any month in our records and the 12th consecutive month in which there were at least 10% fewer homes for-sale than there were in the same month a year ago. But national inventory in March fell just 1.1% from in February, the smallest monthly decline since July 2020, and inventory was up from February in 19 of the nation’s 50 largest metro areas. Part of this improved trend is due to new listing activity, which has risen strongly in the past four weeks after slowing for much of February. Separate readings on seller sentiment have also improved in recent weeks as more signs of an improving economy emerge. In a market where demand for homes remains elevated, prices are rising extremely quickly and supply is struggling to keep up, any improvements in home inventory, no matter how faint, are a welcome sign.
Home sales data were a mixed bag in March, but ultimately offered plenty of reasons for optimism for the market’s path forward as the spring selling season rolls on. Sales of existing homes – which generally reflect shopping activity from one or even two months prior — were relatively cool in March as the impact of February’s adverse weather and sluggish listing activity to start the year continued to trickle through the market. But with listing activity picking up in recent weeks and applications for home purchase loans improving in March after stalling in February, monthly improvements for existing home sales are likely on the horizon. More broadly, despite moderating in the past few months, existing home sales remain elevated well above recent years’ pace. Just over 1.2 million existing homes were sold in the first three months of 2021, 13.9% more than the first quarter of 2020, before the pandemic arrived. New home sales, meanwhile, reaccelerated in March after briefly tapping the brakes in February, soaring to their highest level since August 2006. The stellar report reinforced that demand for housing remained elevated and should inspire more home construction in the months to come.
Mortgage rates fell further this week, continuing a trend that has formed over the past several weeks and felt unlikely even just a few weeks ago. After sharply rising to begin the year – jumping by as much as 0.5 percentage points in the span of a month – mortgage rates have reversed course over the past few weeks and now sit at their lowest level since the beginning of March. Perhaps most surprisingly, rates have fallen even as reports on key economic data show the nation’s recovery efforts are beginning to gather steam. One reason for this atypical movement could be that investors had already priced in these strong reports. Last week’s stellar read on retail sales, for instance, was expected following the receipt of stimulus payments by many households across the country. Some evidence also suggests that demand from overseas investors has increased lately, placing more downward pressure on bond yields which tend to dictate the path of mortgage rates. More generally, rising COVID-19 cases may have tempered some investor optimism for the near-term, limiting their tolerance for risk. So while the longer-term trend for mortgage rates remains to the upside, changes over the past few weeks have been a welcome reprieve from the rising rate environment that the market found itself in at the beginning of 2021. Separately, readings on the health of the mortgage market continue to show improvement. According to Black Knight, the share of loans that were 30 or more days behind on payments fell to 5.02% — down 0.98 percentage points or 514,000 loans from February.
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