In a surprising turn of events, sales of existing homes experienced a significant surge of 9.5% in February compared to January, reaching 4.38 million units. This came as a shock to housing analysts who were anticipating a slight decrease in sales. Although sales were down by 3.3% year over year, this monthly increase marked the largest gain since February 2023. The surge in sales was most pronounced in the West, with a 19.4% increase, and the South, with a 16.4% rise, while there were no changes in sales in the Northeast region.
Lawrence Yun, the chief economist of the National Association of Realtors, attributed the increase in sales to the additional housing supply which helped meet the growing market demand. The rise in housing demand has been fueled by population growth and job expansion. However, the actual timing of purchases is dependent on prevailing mortgage rates and the availability of housing inventory. Inventory levels rose by 10.3% year over year to 1.07 million homes, representing a relatively low 2.9-month supply at the current pace of sales.
The heightened demand for homes continued to drive up median prices, which escalated by 5.7% year over year to reach $384,500 in February. This marked the eighth consecutive month of annual price gains. Fierce competition was evident in the market, with 20% of homes selling above their listed prices. The surge in sales can be attributed to contracts likely signed in December and January, when the 30-year fixed mortgage rate was in the mid-6% range. However, the current rate has climbed above 7%, according to Mortgage News Daily.
Despite the overall surge in sales, first-time buyers did not increase proportionally. They only represented 26% of buyers in February, a decline from the 28% recorded in the previous month. This is significantly lower than the historical average of around 40%. On the other hand, all-cash purchases accounted for 33% of sales, up from 28% the previous year. Yun suggested that factors such as the stock market performance and record-high home prices might be influencing buyers’ decisions. Additionally, individuals from high-cost areas like California are relocating to more affordable markets such as Florida or Georgia and opting to pay in cash. Consumers seem to be adjusting to a “new normal” regarding mortgage rates.
The real estate market has defied expectations with a significant surge in sales, driven by factors such as increased housing supply, population growth, and job expansion. Despite challenges such as rising mortgage rates and fierce competition, buyers are demonstrating resilience and adaptability in a dynamic market environment.