Existing Home Sales Surge in February, Defying Projections Amidst Inventory Re-entry
Existing home sales in the U.S. increased in February, surpassing economist projections, as more previously delisted properties re-entered the market. While inventory saw a modest rise, it remains below historical levels, with median home prices continuing a trend of year-over-year increases. Mortgage rates, though fluctuating, are lower than a year ago, influencing both buyer and seller activity.
Existing Home Sales Overview
Sales of previously occupied U.S. homes rose by 1.7% in February compared to January, reaching a seasonally adjusted annual rate of 4.09 million units. This figure exceeded the 3.84 million pace projected by economists. Despite the monthly increase, sales declined by 1.4% from February of the previous year.
The February increase followed a notable decline in January, which marked the largest monthly drop in nearly four years and the slowest annualized sales pace in over two years. The U.S. housing market has experienced a downturn since 2022, characterized by rising mortgage rates. Throughout the previous year, existing home sales remained at 30-year lows, with the annual pace consistently below the historical average of 5.2 million units. Transactions closed in February likely originated from deals made in December and January, when 30-year fixed mortgage rates were approximately 6%.
Home Prices
The national median sales price for homes increased by 0.3% year-over-year in February, reaching $398,000.
This marks the 32nd consecutive month of annual increases in home prices.
Sales activity was strongest for properties priced at $1 million or more, while sales in the lowest price segments of the market experienced a sharp decline.
Inventory and Supply Dynamics
Inventory of homes available for sale stood at 1.29 million units at the end of February, representing a 2.4% increase from January and a 4.9% increase from February of the previous year. This equates to a 3.8-month supply at the current sales pace, a figure unchanged from January. A six-month supply is typically considered indicative of a balanced market. Overall listings remain 17% below 2019 levels.
National inventory is currently higher than a year ago, but the rate of increase has decelerated for nine consecutive months. Inventory improvements have primarily been observed in the South and West, particularly for homes priced below $500,000. The Northeast and Midwest regions continue to experience an undersupply of homes.
Seller Activity and Market Re-entry
January data indicated a trend of homes relisting for sale. Approximately 45,000 homes that had been delisted last year were relisted in January.
This represents the highest January total in a decade for relisted homes and accounted for 3.6% of homes on the market that month.
This re-entry follows a period last September when approximately 85,000 sellers withdrew properties from the market, a 28% increase from the previous September. Higher mortgage rates, elevated home prices, and economic uncertainty were cited as factors reducing buyer activity, which influenced sellers' decisions to delist.
Some sellers who delisted their properties in the previous year are now re-entering the market, coinciding with the start of the spring housing season. Real estate agents noted in December that some sellers opted to remove their homes from the market if desired prices were not met, with intentions to relist later. The time required to sell a home increased to 47 days in February, up from 42 days a year prior.
Mortgage Rates and Affordability
Mortgage rates have recently been near four-year lows but have increased slightly, attributed to global events and inflation concerns. Despite the recent uptick, current mortgage rates are lower than a year ago. Lower mortgage rates contributed to a slight improvement in affordability.
However, housing demand remains subdued relative to wage growth and job increases. Wage growth is currently outpacing home price growth by nearly four percentage points. Despite over 6 million more jobs than in 2019, annual home sales are down by 1 million compared to that period.
Buyer Demographics and Expert Outlook
First-time buyers accounted for 34% of total sales in February, an increase from 31% a year ago. Investors maintained 16% of sales, unchanged from the previous year.
Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), highlighted that:
"If demand significantly increases and outpaces supply growth in the coming months, home prices are likely to rise. He emphasized that increasing supply is necessary for limiting home price growth, improving affordability, and boosting transactions."