The National Association of Realtors reported a remarkable 9.5% surge in existing home sales in February compared to January, reaching a total of 4.38 million units on a seasonally adjusted annualized basis. This unexpected increase caught housing analysts off guard, who were actually anticipating a slight drop in sales. Despite a 3.3% decrease in year-over-year sales, this was the most significant monthly gain since February 2023.
One of the most notable aspects of this surge in sales was the variation across different regions. Sales spiked the most in the West, shooting up by 19.4%, followed closely by the South with a notable 16.4% increase. Surprisingly, sales in the Northeast remained unchanged during this period. This regional variation indicates specific factors at play unique to each area that influenced the market dynamics.
The increase in housing supply played a crucial role in satisfying the growing market demand, according to Lawrence Yun, the chief economist at NAR. The upward trend in housing demand is primarily driven by population growth and job expansion. However, the actual timing of home purchases is heavily dependent on fluctuating mortgage rates and the availability of diverse inventory options. The rising inventory, up by 10.3% year over year to 1.07 million homes for sale, only represents a 2.9-month supply at the current pace of sales, indicating the continued tightness in the market. Consequently, the heightened demand exerted upward pressure on median home prices, increasing by 5.7% from the previous year to $384,500. The intense competition in the market is evident as 20% of homes are selling above the listed price, reflecting the fierce competition among buyers.
The prevailing market conditions, including the decrease in mortgage rates from the mid-6% range to over 7%, have influenced buyer behavior. Despite the surge in overall sales, first-time buyers only accounted for 26% of buyers in February, down from 28% in January. This figure is significantly below the historical average of 40%, indicating a subdued entry of new buyers into the market. On the other hand, all-cash sales have seen a notable increase, rising from 28% to 33% year over year. Yun speculates that factors such as the influence of the stock market and record-high home prices are driving buyers from expensive states like California to more affordable markets such as Florida or Georgia, where they are making all-cash purchases. This shift in buyer behavior may indicate a broader acceptance of a “new normal” in mortgage rates among consumers.
The surprising surge in existing home sales in February highlights the complex interplay of factors influencing the real estate market. Regional disparities, inventory levels, pricing trends, and shifting buyer behavior all contribute to the dynamic nature of the housing market. As the market continues to evolve, it will be essential for stakeholders to closely monitor these trends and adapt their strategies to navigate the changing landscape effectively.
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