Existing home sales increased last month for only the third time since May amid a tumultuous housing market featuring high mortgage rates.
Home sales in February rose a strong 9.5% to a seasonally adjusted annual rate of 4.38 million, the National Association of Realtors reported on Thursday. That is the largest increase since February of last year.
Mortgage rates, which recently have been inching higher, are still pricing out many would-be buyers and leading to people avoiding selling.
The pace of home sales is down 3.3% from the year before.
Total housing inventory at the end of February was 1.07 million units, up 5.9% from January and 10.3% from a year ago.
The median price of an existing home in February was $384,500, an increase of 5.7% from the year before. Additionally, homes typically remained on the market for 38 days in February, up from 36 days in January.
“Additional housing supply is helping to satisfy market demand,” said NAR chief economist Lawrence Yun. “Housing demand has been on a steady rise due to population and job growth, though the actual timing of purchases will be determined by prevailing mortgage rates and wider inventory choices.”
The Federal Reserve’s mission to quash inflation by hiking interest rates has roiled the housing market. That is because mortgage rates tend to follow movements in the Fed’s target rate.
As of this week, the average rate on a 30-year, fixed-rate mortgage was 7.06%, according to Mortgage News Daily, which tracks daily changes in rates. That is down from a recent peak of above 8%, although it is far higher than in the years prior to the pandemic.
Typically, when mortgage rates are up, demand for homebuying falls and harms the housing market overall.
This tightening cycle has seen a unique dynamic at play in the housing market. When the Fed cut interest rates in 2020, mortgage rates flatlined at historic lows and led to a surge in homebuying.
But after mortgage rates began shooting up as the Fed tightened, those who had locked in those low rates have been holding off on reselling, causing a shortage of existing homes on the market and putting pressure on the market for new homes.
New home sales rose 1.5% in January and are just under 2% higher than the January 2023 estimates.
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In a bit of good news for the overall housing market, the number of housing starts ticked up in February. Housing starts, the change in the number of new residential buildings that began construction, rose 10.7% from January to this past month, according to a report out this week.
Starts are now at a seasonally adjusted annual rate of 1.52 million. From February 2023, they increased by 5.9%.