Ahead of the much-awaited spring season, existing-home sales have seen a modest improvement that has been characterized as a “potential” sign of increasing demand, according to the latest data from the National Association of Realtors® (NAR).
NAR’s Existing-Home Sales Report saw a 1.7% increase in sales to a rate of 4.09 million in February, a strong reversal from the 8.4% fall seen in January. Year-over-year, existing-home sales were still down 1.4%.
Inventory also saw a rise in February, up 2.4% month-over-month and 4.9% year-over-year to 1.29 million units. This is equal to a 3.8 months’ supply, which is unchanged from last month, but up from 3.6 months last year.
NAR Chief Economist Lawrence Yun characterized the rise as “potential housing demand.”
“Potential housing demand has been rising, but the actual home sales are 1 million fewer,” he explained.
Yun noted that with continued growth to housing affordability, some of the pent-up demand in the market could begin to “translate into actual home sales.”
“The housing affordability improvement, the modest gain in home sales, it’s welcoming, but we are still underperforming in the big picture,” he continued.
Bright MLS Chief Economist Lisa Sturtevant agreed with Yun’s assessment, adding that “even though there is pent-up demand in the market, there appears to be little urgency on the part of either buyers or sellers.”
“While sales ticked up seasonally between January and February, economic uncertainty, and potentially winter weather kept more buyers from entering the market last month,” she continued. “A lack of inventory is also a constraint.”
As mentioned by Yun, the report did record an improvement in affordability. NAR’s Housing Affordability Index saw an increase to 117.6 in February from 117.1 in January and 103.1 a year ago, the highest level seen since March 2022. Affordability also improved across all four regions: the Northeast was up 10.0%, the Midwest was up 11.7%, the South was up 14.1% and the West was up 17%.
The median price saw another rise year-over-year, but only 0.3% to $398,000, a deceleration.
Improvements in affordability, however, are slightly overshadowed if there are not continued improvements in inventory.
“Somehow, if the spring home-buying season really kicks higher because of improvement in affordability, we really need to have inventory, otherwise prices will shoot higher and it’s going to perpetuate excess of a K-shaped economy (where different sectors, industries or income groups see large differences),” said Yun.
Yun also noted that 14% of properties sold above list prices, which still indicates a lack of inventory and a multiple offer market. However, this is down from 21% last year, so competition is seeing a decrease as there is some growth in inventory.
In terms of different housing segments, single-family home sales grew 2.5% to a rate of 3.73 million, down 1.1% year-over-year. Condos and co-ops, on the other hand, recorded a 5.3% decrease in sales to a rate of 360,000, also down 5.3% year-over-year. Both segments saw slight increases in median prices, at $401,800 (+0.2% year-over-year) and $358,100 (+0.9% year-over-year), respectively.
Sales were mixed across the four regions, with several improvements month-over-month and year-over-year, but also some remaining lag:
- The Northeast saw a 6% decrease to a rate of 470,000, down 4.1% year-over-year. The median price grew 3.3% year-over-year to $479,800.
- The Midwest saw a 1.1% increase to a rate of 940,000, down 4.1% year-over-year. The median price grew 2.3% year-over-year to $302,100.
- The South saw a 1.6% increase to a rate of 1.89 million, up 0.5% year-over-year. The median price grew 0.2% year-over-year to $356,800.
- The West saw an 8.2% increase to a rate of 790,000, down 1.3% year-over-year. The median price grew 1.9% year-over-year to $603,100.
First-time buyers look to be starting a return to the market as well, as NAR reported that 34% of sales were first-time homebuyers, up from 31% in January and one year ago.
“I think the financial capacity is the big driver of the first-time buyers,” explained Yun. “We know that affordability has been steadily rising. Improvement in affordability, largely due to the lower mortgage rates—I think it’s bringing the first-time buyers back into the market.”
Looking ahead, Yun said that there is obvious concern over the potential of elevated mortgage rates due to higher oil prices from geopolitical conflict—most notably, war with Iran.
“Mortgage rates may in fact rise despite the fact that the Federal Reserve is trying to cut their short-term interest rate; the long-term interest rate, like mortgage rate, could actually rise if the inflation begins to pick up and certainly oil prices can contribute to that elevated inflation rate,” he said.
Realtor.com® Chief Economist Danielle Hale noted that the current lower rates “are likely to boost March home sales,” but that “the economic uncertainty that stems from the conflict is likely to have some offsetting effects and could create a bit of a rush among consumers to lock in a mortgage rate before they tick higher.”
“If this happens, we would see a boost in March sales because buyers who might otherwise have purchased later in the year are pulled forward, and this would then dampen sales later in the year,” she continued.
