Buyers are still behind the 8-ball

By Mark Huffman of ConsumerAffairs

Sales of existing homes fell 4.7% in March, according to the National Association of Realtors (NAR) and were down nearly 4% from March 2023.

At the same time, mortgage rates are still rising. Freddie Mac reports the average 30-year fixed-rate mortgage rose from 6.88% to 7.10% over the last week. So, while there may be more homes for buyers to consider, the cost of financing them is going up.

Even with fewer sales, the median price of a home also continues to rise. NAR reports the median existing single-family home price was $397,200 in March, up 4.7% from March 2023.

If home sales continue to slow it should increase inventories, which in turn could bring down prices. But Greg Clement, founder and CEO of Realeflow, a property investing software firm, says there still arent enough available homes.

Still not enough homes

Interest rates will move the needle slightly, but that is like the tail wagging the dog, Clement told ConsumerAffairs. The dog is simply the number of residential properties in America, and that needs to increase.

Yancy Forsythe, the owner of Missouri Valley Homes in Carrollton, Mo., and a longtime real estate investor says declining home sales will eventually help buyers.

The decline in home sales will likely lead to a reduction in home prices in the next six months, Forsythe told us. This is a natural response because sellers are adjusting to attract fewer buyers in the market.

But Forsythe said a decline in mortgage rates may be necessary to draw buyers back to the market in significant numbers. He thinks rates could dip to the mid 6% range by the third quarter.

Interest rates are the biggest factor

Dale Wills, founder of Centra Companies, a real estate development firm, says slowing home sales are unlikely to affect prices very much. Interest rates, he says, are the key.

If you look at historical numbers, we always see buyers press pause for a few months once interest rates go up, he said. If rates fall, well likely see buyers flock to the market in droves. If interest rates remain steady, well see some return to the market in a few months. If interest rates go up, well continue to see hesitation from buyers.

At the same time, the slowdown in home sales in both February and March is helping to improve the inventory of available homes. NAR reports inventory levels of existing homes grew 4.7% from one month ago to 1.11 million at the end of March, or the equivalent of 3.2 months' supply at the current monthly sales pace.