Political | Process

U.S. home sales dropped to the lowest level in nearly two years in March as house prices raced to a record high, and could decline further with mortgage rates hitting 5%.

The report from the National Association of Realtors on Wednesday also showed the drop in sales in February was much steeper than initially thought.

Even with home sales reverting back to their pre-pandemic level, the housing market remains hot. Homes sold in March typically stayed on the market for only 17 days and the share of all cash sales was the largest in eight years.

“For the best chance of success, home shoppers should have cash offers ready, and they should lock in mortgage rates, as they are expected to keep rising,” said Robert Frick, corporate economist at Navy Federal Credit Union in Vienna, Virginia.

Existing home sales dropped 2.7% to a seasonally adjusted annual rate of 5.77 million units last month, the lowest level since June 2020. Data for February was revised sharply down to a rate of 5.93 million units from the previously reported 6.02 million units.

March sales mostly reflected the closing of contracts signed two to three months ago when the 30-year fixed-rate mortgage was below 4%. Economists polled by Reuters had forecast sales would decrease to a rate of 5.80 million units. Sales fell in the Northeast, South and Midwest. They were unchanged in the West.

Home resales account for the bulk of U.S. home sales. They were down 4.5% on a year-on-year basis in March.

The 30-year fixed-rate mortgage averaged 5.0% during the week ended April 14, the highest since February 2011 and up from 4.72% in the prior week, according to data from mortgage finance agency Freddie Mac.

The Federal Reserve in March raised its policy interest rate by 25 basis points, the first rate hike in more than three years, as the U.S. central bank battles surging inflation. Economists expect the Fed will hike rates by 50 basis points next month, and soon start trimming its asset portfolio.