Homebuyers Flood the Market

Amid mortgage rates echoing the peak levels of the early 2000s, February saw an unexpected surge in homebuying, marking the largest monthly increase of existing home sales in a year.

Last month’s existing home sales soared by 9.5 percent, despite the historically high mortgage rates that had been cooling the market, according to a National Association of Realtors (NAR) report issued Thursday. The spike in sales activity occurred across much of the United States, with notable increases in the West, South and Midwest.

The NAR report further highlighted a substantial 5.9 percent increase in the inventory of unsold homes compared to the previous month, suggesting a shift toward a more balanced market.

Yet, despite the inventory rise, year-over-year sales dipped by 3.3 percent, hinting that while existing home sales ticked up, some would-be buyers are still waiting on the sidelines.

Unfortunately for those would-be buyers, median existing-home sales price continued its upward trend, increasing 5.7 percent from last year to $384,500, marking the eighth consecutive month of year-over-year price gains.

Oliver Allen, senior U.S. economist at Pantheon Macroeconomics, expressed surprise to Newsweek at the buoyancy of the market: “The surge may partly reflect some residual seasonality in the series, given the inexplicably strong 11.3 percent jump in sales in February last year too. The home sales numbers are also very sensitive to weather effects in the winter months, and February was much warmer than usual, with relatively low snow cover.”

Allen also cautioned that the market might not sustain its current momentum.

“A sustained recovery in existing home sales would require a much stronger recovery in mortgage demand, which seems to have stalled recently as long-term rates have risen again,” he said.

The unexpected jump in sales comes at a time when the housing market is typically quieter due to winter conditions. However, the increase has not been uniform across the country. The Northeast saw no change in sales but led in price gains, according to the NAR, suggesting regional market dynamics are at play.

Nationally, properties stayed on the market longer in February compared to the previous month and year, indicating a slight cooling. That could affect the pace at which homes are sold moving forward, potentially stalling the market’s momentum as it heads into the traditionally busier spring season.

Reflecting on the composition of the market, the report noted a slight decrease in first-time buyers to 26 percent, while all-cash purchases—which often involve investors—saw an increase, comprising one-third of all transactions.

Despite concerns over affordability, the figures indicate a robust investment presence in the market, which can have implications for the availability and pricing of homes for typical buyers. In contrast, distressed sales remained static, forming just 3 percent of total sales.

Jack Macdowell, chief investment officer at Palisades Group, provided a broader economic perspective to Newsweek.

“The resale market will continue to remain suppressed due to slowing rates of decline in inflation figures, a resilient labor market, and generally favorable economic conditions,” he said.

Macdowell highlighted the ongoing challenge of high mortgage rates deterring potential buyers and current homeowners from entering the market, which may exacerbate the supply issues as the peak homebuying season approaches.

The experts suggested that the recent surge in home sales could be short-lived, as the push in demand may be countered by a market cooled by high mortgage rates and limited supply.

The brisk February sales are unlikely to herald a sustained trend, particularly with existing homeowners deterred from entering the market, keeping inventory tight as the peak buying season approaches.