Sales of previously occupied U.S. homes gained momentum in February as buyers accepted the new normal of rising mortgage rates.
Existing home sales rose 9.5% from the previous month to an annual rate of 4.38 million in February, the National Association of Realtors (NAR) announced Thursday. This was an increase of approximately 6% compared to the same period last year, and was the largest monthly increase of the year.
Median home prices also rose about 6% to $384,500, the highest ever for February and the eighth consecutive month of year-over-year increases.
Still, sales have been declining since February 2023, suggesting some degree of market tightness. On the bright side, there were 1.07 million homes available for sale at the end of February, an increase of 10% from a year ago.
The increase in inventory is a boon for homebuyers, who have long dealt with a lack of choice in the market. However, most of the activity seen last month remained at the upper end as entry-level housing remains in short supply.
“The absolute nadir for inventories may be over,” Lawrence Yun, NAR's chief economist, told reporters on a conference call Thursday. “There's more inventory coming onto the market, and that may be one of the big factors why we're seeing an increase in home sales. There's more choice for consumers.”
Multiple offers already exist
Homebuyer activity picked up last month, with some areas seeing a resurgence of multiple offers despite rising home prices. All four regions recorded year-over-year price increases, according to NAR.
In Europe and the US, existing home sales rose nearly 17% from the previous month, with the median price at $593,000, an annual increase of 9%.
Sales in the South are up nearly 10% from January, and the median price is $354,200, up 4% from last year.
In the Midwest, home sales increased more than 8% month over month, with a median price of $277,600.
For the Northeast, existing home sales were unchanged from January, but were down almost 8% compared to the same month last year. The average price of homes sold was $420,600, an increase of 11.5% year-over-year, the highest year-over-year increase of all regions.
“The Northeast is somewhat unique in terms of why sales haven't increased… simply due to the fact that there is a lack of inventory and the presence of large multiple offers that are occurring due to the lack of inventory.” Mr. Yoon said. “In fact, we are seeing the steepest price increases in the Northeast. [demand] May be hampered by lack of availability. ”
Homebuyers are dissatisfied with affordability.
As competition increased last month, first-time buyers were once again sidelined.
All-cash transactions accounted for 33% of existing homes sold in February. Private investors or second home buyers who purchased with cash purchased 21% of the homes.
Meanwhile, first-time buyers accounted for just 26% of sales.
Rising home prices and rising interest rates were factors that dampened first-time buyer demand, according to NAR. Another challenge was the increasing rate of multiple offers from repeat buyers. Approximately 20% of homes sold in February were sold over-ask.
Aside from rising prices, entry-level buyers didn't have many options to choose from. Starter homes remain severely lacking on the market as many homeowners remain reluctant to forgo ultra-low interest rates.
For example, sales of homes priced under $100,000 in February were down 11% from a year earlier. Meanwhile, homes priced between $100,000 and $250,000 fell 7% for the year.
Meanwhile, sales of homes priced between $250,000 and $500,000 increased by 3%, and sales of homes priced between $750,000 and $1 million increased by 23%. Homes priced over $1 million saw the most activity, with demand increasing 37% year-over-year, according to NAR.
“Homeowners are happy with rising prices, but homebuyers are dissatisfied with affordability, as inventory is scarce and they have to face multiple offer situations. It’s even more difficult,” Yun said.
Forget about interest rates going back to 3%
Sales increased last month even as mortgage rates were toying with 7%.
The average interest rate on a 30-year fixed mortgage was 6.63% at the beginning of February, but rose to 6.94% at the end of the month, according to Freddie Mac. Interest rates have since fallen by nearly a quarter of a percentage point as of March 14, and currently stand at 6.87%.
“Mortgage interest rates are entering a new normal,” Yun said. [Consumers know that] “Mortgage rates will never be 3% again. They won't be 4%, and it may be difficult to even get to 5%.”
Gabriela Cruz Martinez I'm a personal finance and housing reporter for Yahoo Finance. Follow her on X @__Gabriela Cruz.
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