Home sales way up in February, but spring numbers could dip
NAR reported a big jump in existing home sales from January to February, though sales and prices are down compared to a year ago.
Key points:
- The 14.5% monthly increase was the largest jump in more than two and a half years.
- Existing home prices dropped slightly compared to Feb. 2022, ending a 131-month streak of year-over-year increases.
- Low inventory could mean that well-priced homes will still garner multiple offers this spring, but interest rates will drive the market overall.
February's data on existing home sales is a strong indication of how sensitive the housing market is to mortgage interest rates.
The latest report from the National Association of Realtors noted a substantial 14.5% increase in February, pushing the seasonally adjusted rate to 4.58 million. That snapped a 12-month decline in existing home sales and was the biggest one-month increase since July 2020.
While the numbers represent a healthy jump from January, sales were down 22.6% compared to February 2022 and median prices were nearly flat, off 0.2% at $363,000. The small decline ends a streak of 131 consecutive months of year-over-year increases, the longest on record according to NAR.
The rise in sales came at a time when mortgage interest rates steadily declined to nearly 6% at the beginning of February. Rates have risen since then, hitting 6.73% in mid-March before dropping last week to 6.6%.
"Conscious of changing mortgage rates, home buyers are taking advantage of any rate declines," said NAR Chief Economist Lawrence Yun. "Moreover, we're seeing stronger sales gains in areas where home prices are decreasing and the local economies are adding jobs."
However, that trend may not continue. The expectation in the coming months is year-over-year declines in sales and prices, said Keller Williams' Chief Economist Ruben Gonzalez.
"The recent bank failures are likely to weigh on home sales in coming months despite the recent decline in mortgage rates," Gonzalez said in an email, noting that in the past, banking crises often corresponded with protracted housing market downturns and declining home prices.
"Most economic barometers have continued to show strength, but bank failures of this magnitude have rarely left the economy unaffected and it's too soon to know their full impact," said Gonzalez.
Inventory remained at the same levels as January, which is estimated to be 2.6 months supply. With inventory remaining low, Yun said many markets are still seeing multiple offers on some properties despite the overall slowdown in sales.
Limited supply and affordability will likely contribute to a slower spring homebuying season, said Realtor.com Economic Data Analyst Hannah Jones.
"As high prices and elevated mortgage rates continue to stifle buyer activity, this spring's market is expected to be toned down relative to the last couple of years," Jones said. "However, the housing market remains undersupplied, so well-priced, well-maintained listings are likely to draw buyer attention."
The West region saw the biggest month-to-month jump in existing home sales, but also posted the largest drop in price. Sales increased 19.4% in February while the median price was $541,100, down 5.6% from February 2022.
Year-over-year prices increased in the Midwest (up 5%) and South (up 2.7%), while dropping 4.5% in the Northeast. Sales were also slowest in the Northeast between January and February, rising just 4%.
Even with declining mortgage rates in early February, fewer first-time homebuyers entered the market. They were responsible for 27% of sales in February, down from 31% in January and 29% in February 2022.
The report found properties remained on the market an average of 34 days in February, up from 33 days in January and 18 days in February 2022. Most homes (57%) sold in February were on the market less than a month.