Investors are paying cash and forcing out first-time buyers.
According to Reuters, the surge in sales of previously owned homes last month reported by the National Association of Realtors on Friday also reflected buyers rushing in to close contracts in anticipation of mortgage rates rising further. Investors made up the largest share of transactions in six years last month.
Mortgage rates have climbed to levels not seen since 2019 as the Federal Reserve is expected to start increasing interest rates next month to tame soaring inflation. Economists are anticipating as many as seven rate hikes this year.
“This is the rush to get in before borrowing costs move higher,” said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto. “Unfortunately, first-timers are being priced out of the increasingly expensive purchase.”
Existing home sales jumped 6.7% to a seasonally adjusted annual rate of 6.50 million units last month. Sales rose in all four regions, with strong gains in the Midwest, the most affordable region. Sales soared 9.3% in the densely populated South, which is experiencing an influx of residents from other regions as companies embrace remote work. Economists polled by Reuters had forecast sales decreasing 1.0% to a rate of 6.10 million units.
Home resales, which account for the bulk of U.S. home sales, fell 2.3% on a year-on-year basis. Strong demand for housing against the backdrop of a strengthening labor market and massive savings is outstripping supply, curbing sales. Builders have been unable to significantly ramp up construction because of shortages and higher prices for inputs like softwood lumber for framing as well as cabinets, garage doors, countertops and appliances.