The spring homebuying season has begun on a slow note as potential buyers grapple with elevated mortgage rates and increasing home prices. According to the National Association of Realtors (NAR), sales of previously owned homes in the United States fell by 4.3% in March, marking the first monthly decline since December. The seasonally adjusted annual rate of sales stood at 4.19 million.

Comparing March sales to the same period last year, existing home sales dropped by 3.7%. Despite the decline, the actual sales figure was slightly higher than the 4.16 million pace that economists were expecting. Lawrence Yun, the chief economist at NAR, explained that stagnant mortgage rates and a lack of inventory were the primary factors holding back home sales.

The average rate on a 30-year mortgage rose above 7%, reaching its highest level since late November, according to mortgage buyer Freddie Mac. This upward trend in mortgage rates has posed challenges for homebuyers during the traditionally busy spring season. Yun stated, "Home sales essentially remain stuck because (the) mortgage rate has been stable and inventory is not really rising."

In terms of pricing, the median sales price for homes in March soared by 4.8% compared to the previous year, reaching a record high of $393,500. This surge in prices reflects the intense competition among buyers, with 60% of homes purchased in March selling within a month of being listed. Furthermore, 29% of homes were sold above their initial list price, indicating the intensified bidding wars.

Although the supply of homes on the market has increased by 4.7% from February, it is still well below the 1.7 million homes available in March 2019, before the onset of the COVID-19 pandemic. Currently, there is a 3.2-month supply of homes on the market, up from 2.9 months in February. In a healthier market for buyers and sellers, a 4- to 5-month supply is considered balanced.

The shortage of available homes gives sellers an advantage, particularly for those looking to sell affordable properties that attract multiple offers. This housing market dynamic has been influenced by the prolonged sales slump in recent years, triggered by rising mortgage rates and limited inventory. In 2022, sales of previously owned homes hit a nearly 30-year low, plummeting by 18.7% compared to the previous year.

Looking ahead, economists predict a modest decrease in mortgage rates, which may provide homebuyers who rely on financing with more purchasing power. Yun suggested that the 30-year-fixed mortgage rate could potentially rise to 7.5% before settling back down to 6.5% by the end of the year. Realtor.com is also projecting an average rate of 6.5% by the close of 2023.

Despite the challenges faced by first-time homebuyers, there has been a marginal increase in their share of home sales. In March, they accounted for 32% of all homes sold, showing a rise from 26% in February and 28% in the same month last year. However, this figure still falls short of the historical average of 40%.

Additionally, cash buyers continue to be a significant presence in the market, representing 28% of all homes sold in March. This is a slight dip from 33% in February but an increase from 27% in March 2022.

As the spring homebuying season progresses, potential buyers face the dual challenges of rising mortgage rates and limited inventory. The hope lies in the anticipated drop in mortgage rates, which could provide buyers with increased affordability and potentially stimulate the housing market.