What’s Behind the Drop in US Existing Home Sales?

Hands exchanging miniature house over contracts

Existing home sales have plummeted to their lowest March levels since the 2009 subprime mortgage crisis, signaling potential trouble ahead for the American housing market.

Top Takeaways

  • Existing home sales dropped 5.9% to an annual rate of 4.02 million units in March, worse than economists predicted and the slowest pace since 2009.
  • High mortgage rates approaching 7%, rising home prices, and economic concerns about tariffs are major factors deterring homebuyers.
  • Housing inventory increased 19.8% from last year, with properties staying on the market longer (36 days vs. 33 days a year ago).
  • First-time buyers made up 32% of purchases while all-cash sales decreased to 26%, highlighting affordability challenges in the current market.
  • Economic experts warn conditions could worsen due to compounding pressures from high prices, mortgage rates, tariffs, and consumer anxiety.

Housing Market Takes Significant Hit

The U.S. housing market experienced a substantial downturn in March as existing home sales fell to a seasonally adjusted annual rate of 4.02 million units, marking a 5.9% decrease from the previous month. This decline exceeded economists’ forecasts, which had predicted a more modest drop to 4.13 million units. The current sales pace represents the slowest March for existing home sales since 2009, during the aftermath of the subprime mortgage crisis, raising concerns about the health of the housing market heading into what is traditionally the busy spring selling season.

Despite the slowdown in sales activity, home prices continue to climb, albeit at a slower pace. The median existing home price reached $403,700 in March, representing a 2.7% increase from the same period last year. This marks the smallest annual gain since August, suggesting that the rapid price appreciation seen in recent years may be cooling. The National Association of Realtors (NAR) also reported an increase in canceled contracts during March, with warnings that further cancellations could occur due to stock market volatility.

Affordability Crisis Deepens

The primary culprits behind the housing market’s current struggles are directly tied to affordability issues. Mortgage rates hovering near 7% have significantly increased monthly payments for potential buyers, pricing many out of the market entirely. These higher rates have particularly impacted first-time homebuyers, who now make up 32% of purchasers – well below the historical average of 40%. Additionally, persistent economic concerns about inflation, employment stability, and potential impacts from tariffs have created a climate of uncertainty that further dampens buyer enthusiasm.

Lawrence Yun, chief economist at the National Association of Realtors, noted that most contracts for March sales were likely signed when mortgage rates exceeded 7%, further exacerbating affordability challenges. All-cash transactions, which typically represent investors or wealthy buyers, decreased to 26% from 28% a year ago, indicating that even buyers with substantial resources are becoming more cautious in the current economic environment.

Inventory Growth and Regional Variations

One bright spot in the housing market data is the significant increase in available inventory. The number of homes for sale rose 8.1% to 1.33 million units, representing a 19.8% increase from the previous year. At the current sales pace, it would take approximately 4 months to exhaust this inventory, up from 3.2 months a year ago. This expanding supply could eventually help alleviate some of the price pressures in the market, potentially creating more opportunities for buyers who have been sidelined by affordability concerns.

Regional performance varied significantly across the country. The West was the only region to record a year-over-year sales gain, driven primarily by strong activity in the Rocky Mountain states. This regional variation highlights the localized nature of real estate markets and suggests that economic factors are affecting different parts of the country in distinct ways. Meanwhile, distressed sales, including foreclosures, increased to 3% from 2% a year ago – a small but noteworthy uptick that may signal growing financial strain among some homeowners.

Looking Ahead: Warning Signs for the Market

Economic experts are expressing concern that the housing market’s challenges could intensify in the coming months. “March numbers are bad, but they’re likely to get worse,” said Robert Frick, corporate economist at Navy Federal Credit Union. The combination of high prices, elevated mortgage rates, economic uncertainties related to tariffs, and growing consumer anxiety about inflation and job security creates a perfect storm of negative pressures on the housing market.

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