Pending home sales dropped far more than expected in February as the supply of homes on the market fell swiftly and home prices soared, data from the National Association of Realtors showed Wednesday.
Pending home sales, which count signed contracts to purchase existing homes, fell 10.6 percent in February compared with the month prior. Economists had forecast a milder decline of just 3.1 percent. In January, pending home sales fell 2.8 percent.
Sales are down 0.5 percent compared with January 2020.
Realtors blame low supply for the drop in contract signings. There were just 1.03 million homes for sale at the end of February, a 29.5 percent decline compared with the prior February. That is the largest annual drop ever recorded.
“The demand for a home purchase is widespread, multiple offers are prevalent, and days-on-market are swift but contracts are not clicking due to record-low inventory,” said Lawrence Yun, NAR’s chief economist.
Homes priced at above $250,000 have largely been driving home sales for the last several months. Much cheaper homes have become extremely scarce. However, Yun saidx that even homes priced above $500,000 to less than $1 million are subject to the same low-inventory dilemma.
“Potential buyers may have to enlarge their geographic search areas, given the current tight market,” Yun said. “If there were a larger pool of inventory to select from – ideally a five- or a six-month supply – then more buyers would be able to purchase properties at an affordable price.”
Very expensive homes hav been less impacted, according to the NAR.
“Only the upper-end market is experiencing more activity because of reasonable supply,” Yun said. “Demand, interestingly, does not yet appear to be impacted by recent modest rises in mortgage rates.”
Extreme weather in February may have dampened home sales as well. The southwest, especially Texas, was plunged into a deep freeze that resulted in unpassable roads and power outages.
Pending home sales transactions in the South—which includes Texas—fell 13.0 percent compared with the prior month, the biggest regional decline. The index in the West fell 7.4 percent. The Northeast fell 9.2 percent. In the Midwest, the sales index dropped 9.5 percent.