Higher mortgage rates took some of the juice out of the housing recovery in February.
After a sharp gain in January, pending home sales rose just 0.8% month to month, according to the National Association of Realtors. Sales were 21.1% lower than February last year. Pending sales are based on signed contracts during the month.
Mortgage rates shot higher in February after dropping sharply in January. The average rate on the popular 30-year fixed mortgage started February right around 6% and ended the month just over 7%, according to Mortgage News Daily. That gave homebuyers considerably less purchasing power.
Regionally sales moved higher month to month in every region except the West, where they fell 2.4%. That is likely because the West is the priciest region for housing, and buyers there are thus stretching the most to afford a home. Any jump in mortgage rates would have an outsized effect there.
“The affordable U.S. regions – the Midwest and South – are leading the recovery,” Yun added. “Mortgage rates have improved in recent weeks after the federal government guaranteed the status of most mortgages amidst uncertainty in the financial market,” Lawrence Yun, chief economist for the Realtors, said in a release. “While access to commercial mortgage loans could become increasingly difficult, residential mortgage loans are expected to be more readily available.”
Home prices have eased considerably since last summer, but housing is still expensive by historical standards. Price drops may also have stalled in January, due to the big jump in buyer demand. Real estate agents anecdotally reported more bidding wars in January, given still very short supply.