Home Sales Increased by 4.2% in February, Beating Expectations

The U.S. real estate market showed signs of recovery in February, with a 4.2% increase in existing home sales compared to the previous month. This growth, reported by the National Association of Realtors (NAR), significantly exceeded economists’ expectations, who had predicted a 3.2% decline. However, affordability challenges and mortgage rates continue to influence market activity.

What’s Driving This Increase in Sales?

The rise in transactions is partly due to buyers and sellers adjusting to current mortgage rates, which have fluctuated between 6% and 7%. Many had postponed home purchases, hoping for a drop in prices or interest rates, but the reality of the market has led some to make decisions based on personal needs, such as job changes or family growth.

“The initial shock is gone. People are getting used to the new normal and deciding to act,” explained Junior Torres, a real estate agent in Seattle.

Additionally, a seasonal factor has played a role in the increase in sales. The real estate market typically sees more activity in the spring months as families plan to relocate before the new school year begins. This cyclical trend could further contribute to a sustained increase in home purchases in the coming months.

Affordability Challenges and Limited Supply

Although the number of homes for sale has increased by 17% compared to February 2024, affordability remains a significant issue for many buyers. Prices remain high, with a national median home price of $398,400 in February, marking a 3.8% year-over-year increase and the highest recorded price for a February.

High insurance costs and property taxes also discourage potential buyers. At the same time, many homeowners with lower mortgage rates have been reluctant to sell, further limiting supply and keeping prices elevated.

Median Home Prices Over the Last 6 Months

To better understand price trends, here is a breakdown of the median home prices in the past six months:

• September 2023: $391,000
• October 2023: $393,500
• November 2023: $395,200
• December 2023: $396,800
• January 2024: $397,500
• February 2024: $398,400

As seen in the data, home prices have been consistently increasing, making it difficult for first-time buyers to enter the market.

Mortgage Rates Remain a Key Factor

Mortgage rates, which peaked at over 7% in January, have slightly decreased to 6.65%, according to Freddie Mac. Although this reduction is modest, it could drive more demand heading into spring, one of the most critical seasons for the housing market. However, economists do not expect a significant drop in rates soon, as the Federal Reserve has maintained its benchmark interest rate in its latest meeting.

“To see a sustained increase in home sales, we need lower mortgage rates,” noted Lawrence Yun, NAR’s chief economist.

Mortgage Rate Trends Over the Past 6 Months

• September 2023: 6.80%
• October 2023: 7.10%
• November 2023: 7.00%
• December 2023: 6.90%
• January 2024: 7.15%
• February 2024: 6.65%

While rates have fluctuated, they remain significantly higher than the historically low levels of 2021 and 2022.

A Challenging Market for Buyers

Despite the increase in sales in February, the real estate market continues to show signs of a long-term slowdown. Home sales have declined by 1.2% compared to last year, breaking a four-month streak of year-over-year increases. In 2024, sales fell to their lowest level since 1995, reflecting persistent affordability challenges and consumer confidence concerns.

One factor affecting demand is economic uncertainty. A Fannie Mae survey in February revealed that one in five consumers expects their financial situation to worsen in the next 12 months, which could further delay home purchases.

“If people are worried about their financial situation, it makes sense that they’d hesitate to take on a 30-year obligation,” said Danielle Hale, chief economist at Realtor.com.

Days on Market Increasing

Another key indicator of market activity is the number of days a home stays on the market before being sold. In February, the median time a home was listed was 42 days, compared to 38 days in February 2023. This suggests that, while buyers are re-entering the market, homes are still taking longer to sell than in previous years.

Market Stories: Buyers Taking the Leap

Samantha and Dan Kohanna, a couple in Palm Beach County, Florida, spent months exploring the market. Although they initially found that renting was more affordable than buying, they eventually purchased a home in January with a 6.125% mortgage rate.

“A few years ago, with 3% rates, we could have bought a much bigger house for the same monthly payment, but after waiting so long, we decided it was time to buy,” Dan explained.

Cases like the Kohannas reflect the behavior of many buyers who, after waiting for rates or prices to drop, are now choosing to enter the market and adapt to the new financial reality.

In conclusion, the increase in home sales in February is a positive sign for the real estate market, though significant challenges remain regarding affordability and consumer confidence. As buyers and sellers adjust to the new normal of higher mortgage rates, market activity is expected to remain stable in the coming months.

For those considering buying a property in Archer Place, now may be a good time to explore options and take advantage of available opportunities. Contact us for more information about homes for sale and how we can assist you in your home-buying journey.