Surge in Existing Home Sales Defies Analyst Expectations

The National Association of Realtors reported a surprising 9.5% surge in existing home sales in February, reaching 4.38 million units on a seasonally adjusted annualized basis. This increase caught housing analysts off guard, as they were anticipating a slight drop in sales. While year-over-year sales were down by 3.3%, February’s gain marked the largest monthly increase since February 2023. Notably, sales saw the most significant increase in the West, with a 19.4% rise, and the South, with a 16.4% increase, while sales in the Northeast remained unchanged.

Lawrence Yun, NAR’s chief economist, attributed the surge in sales to an increase in housing supply meeting market demand. Population and job growth have led to a steady rise in housing demand. The key factors influencing the timing of purchases are prevailing mortgage rates and an expanded inventory selection. Inventory levels rose by 10.3% compared to the previous year, reaching 1.07 million homes for sale by the end of February. Despite this increase, the supply remains low at a 2.9-month pace based on current sales activity.

The heightened demand for housing led to a 5.7% year-over-year increase in median home prices, reaching $384,500. This marks the eighth consecutive month of annual price gains. Fierce competition in the market resulted in 20% of homes selling above their listed price. The surge in sales can be attributed to contracts likely signed in December and January when mortgage rates dropped to the mid 6% range. Current rates have climbed above 7%, according to Mortgage News Daily.

Despite the overall increase in sales, first-time buyers did not experience a surge in February, comprising only 26% of the total buyers, down from 28% in January. This is below the historical average of 40%. All-cash sales, on the other hand, accounted for 33% of transactions, up from 28% the previous year. Yun suggested that factors such as stock market performance and record-high home prices may be influencing buyers’ decisions. Consumers from expensive states like California are shifting towards more affordable markets like Florida or Georgia, often opting to pay in cash. This trend indicates a potential acceptance of a “new normal” for mortgage rates.