In February, sales of pre-owned U.S. homes saw an increase, fueled by more favorable mortgage rates and a higher availability of properties, motivating potential buyers to make purchases.
According to data released by the National Association of Realtors (NAR) on Thursday, there was a 4.2% climb in existing home sales from January, reaching a seasonally adjusted annual rate of 4.26 million units. However, when compared to February of the previous year, sales dipped by 1.2%, breaking a streak of five consecutive years of growth during that month.
Economists had predicted a pace of 3.92 million units, but the actual sales surpassed these expectations as reported by FactSet. Despite this, on an unadjusted scale, sales were still down 5.2% from the previous February—a month which had an added day due to 2024 being a leap year.
The surge in home prices continues with February marking the 20th consecutive month of annual price increases. The national median sales price ascended by 3.8% from the previous year to reach $398,400, a record high for that month. Over the last five years, the median sales price for homes in the U.S. has surged by 47%.
“Homebuyers are gradually re-entering the market,” explained Lawrence Yun, NAR’s chief economist, noting that “although mortgage rates have stabilized, increased inventory and options are relieving some built-up demand for housing.”
The decline in U.S. housing sales began in 2022 when interest rates deviated from their pandemic lows, leading to a sharp drop in the sale of previously occupied homes, hitting their lowest level in nearly three decades. Mortgage rates had briefly decreased to a two-year low last September but climbed to above 7% by mid-January. Since then, they have gradually decreased, with rates averaging 6.76% by the end of February and further decreasing to 6.67% recently according to Freddie Mac.
This is a substantial increase from the record low of 2.65% achieved over four years ago. Typically, there is a one to two-month delay between contract signing and the actual closure of the home sale, suggesting that the drop in rates might contribute to higher sales this month as the spring buying season begins.
Nonetheless, Yun pointed out that a survey of NAR members indicated a decline in buyer traffic compared to a year ago, while seller traffic increased. “The market obviously requires reduced interest rates to consistently lift it,” Yun added.
Soaring home prices coupled with higher mortgage rates have sidelined many prospective buyers and deterred sellers who secured lower mortgage rates from making moves. This has been particularly challenging for first-time buyers lacking equity from previous home ownership, yet they still represented 31% of all sales last month, an increase from 28% in January and 26% in February of the previous year.
There was an increase in homebuyers who paid cash, comprising 32% of sales last month compared to 29% in January. Buyers capable of affording the current rates or bypassing them by paying cash benefit from a greater range of options in the housing market.
The total of unsold homes at the end of last month reached 1.24 million, a 5.1% rise since January and 17% more than last February, as per NAR. At the current sales pace, this equates to a 3.5-month supply, which is consistent with January but higher than the 3-month supply from the previous February. Ideally, a 5- to 6-month supply is viewed as balanced between buyers and sellers.
Yun remarked on the constrained housing market, suggesting the need for a 30% increase in the number of homes for sale to achieve a healthier balance between buyers and sellers. “In the spring and summer months, we expect more inventory,” he noted.
Part of the reason for the increased inventory is that homes are taking longer to sell. Last month, properties remained on the market for 42 days before selling, up from 41 days in January and 38 days in February of the prior year.