Existing home sales eased to their slowest pace in nearly two years in February, falling 0.4 percent on a seasonally adjusted basis from January, according to recent data from the National Association of Realtors.
February's 4.6 million existing home sales were down from the 4.62 million recorded the month earlier, while also representing a 7.1 percent dip from February 2013 and the most lackluster rate of sales seen for a month since July 2012, when 4.59 million properties traded hands.
Weather woes
The NAR attributed the second straight month of lackluster sales returns to ongoing harsh winter weather that again brought activity to a standstill in many parts of the Midwest and Northeast. The association's data also found that home prices continued to rise as inventory levels remained tight, while investor interest in the marketplace stayed steady, accounting for one in every five sales. The weather particularly affected construction rates on new projects, and while sales of such properties weren't included in the existing home data, the general lack of supply remains detrimental to sales rates in many parts of the country, HousingWire reported.
"Another lackluster housing report," said Lindsey Piegza, chief economist for Sterne Agee. "Earlier this week, housing starts fell again in February, the third consecutive monthly decline and the NAHB housing market index remained tepid in March at 47, the second lowest reading in 10 months. Last month's fallout to 46 was the largest on record."
The housing market index, used as a measure of homebuilder confidence, was heavily influenced by the stalled progress of those construction projects, as well as the fact that prices in many markets continued to make gradual gains. There is reason to believe, however, that those factors will have less of an impact as the second quarter of 2014 gets underway.
"Industry insiders cited weather as a temporary factor impeding buying activity but many also pointed to rising borrowing costs and higher property values as longer-term factors limiting affordability and by extension housing demand," Piegza said. "Going forward it will take sustainable job and income growth to propel would-be-homebuyers back into the market. But with the labor market uneven at best, it may take some time before the housing industry regains the momentum seen earlier last year."
Approval standards remain tight while prices keep climbing
Perhaps more detrimental to the housing market's long-term expansion, however, is the continued challenges faced by younger buyers who remain burdened by debt, particularly from student loans. The NAR data acknowledged that initial household formation is threatened by this group's ongoing inability to gain mortgage loan approval, as well as the continued appreciation of national home prices. For February, the median existing-home price for all types of homes was $189,000, which represented a 9.1 percent increase on a year-over-year basis.
So, while the rate of price gains is easing, homes are still more expensive than they were a year ago on average, and prospective buyers often face the dual challenge or having to come up with more funds for higher asking prices while meeting higher standards for approval, per the recently enacted Qualified Mortgage and Ability-to-Repay rules. First-time buyers accounted for 28 percent of existing home purchases in February, an improvement from January's rate of 26 percent but down from the 30 percent that segment represented in February 2013.
"The biggest problems for first-time buyers are tight credit and limited inventory in the lower price ranges," said NAR President Steve Brown. "However, 20 percent of buyers under the age of 33, the prime group of first-time buyers, delayed their purchase because of outstanding debt. In our recent consumer survey, 56 percent of younger buyers who took longer to save for a down payment identified student debt as the biggest obstacle."
Lawrence Yun, the NAR's chief economist, speculated that many potential sales were simply delayed, as the combination of an increased emphasis on risk assessment by lenders, rising prices and inclement weather led many buyers to hold off on making their purchases.
"We had ongoing unusual weather disruptions across much of the country last month, with the continuing frictions of constrained inventory, restrictive mortgage lending standards and housing affordability less favorable than a year ago," Yun said. "Some transactions are simply being delayed, so there should be some improvement in the months ahead. With an expected pickup in job creation, home sales should trend up modestly over the course of the year."
Yun also contended that, while the rapid rates of appreciation have posed issues in terms of affordability, especially in many of the country's metro areas, they are a boon to the market's long-term health.
"Price gains have translated into an additional $4 trillion of housing wealth recovery over the past three years," he said.
Existing home sales are classified as all properties changing ownership and being closed within multiple listing services, including single-family townhomes, condominiums and co-ops.