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Millions of people took advantage of lower mortgage rates and flat home prices last month to buy homes, breathing new life into the US housing market, which has been in steady decline for the past year.
According to data from the National Association of Realtors, February home sales rose to about 4.58 million, up 14.5 percent from the previous month. It beat analysts’ expectations and broke a 12-month streak of steady declines. It’s the largest monthly percentage increase since July 2020, although sales are still down 22.6 percent year-on-year.
Home prices, meanwhile, posted their first year-over-year decline since 2012, with the median US home price falling 0.2 percent to $363,000.
The surge in selling activity confirmed claims by some economists that the US housing market had already bottomed out from a multi-year slump.
“The housing recession is over as spring comes early this year and real estate agents are shouting hallelujah,” said Chris Rupkey, chief economist at FWD Bonds, a New York-based market research firm.
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The slowdown in home construction happened as skyrocketing prices of 2020 and 2021 collided with rising interest rates, making the home buying process across the board less affordable. Homebuying slowed significantly throughout 2022 as the Federal Reserve slowed the economy and the typical mortgage rate more than doubled, climbing as high as 7.08 percent.
The housing market is particularly sensitive to interest rate fluctuations because most people purchase new homes using a home loan, which can attract tens or hundreds of thousands of dollars in interest on top of the home price. That means that of the Fed Rate hikes added hundreds of dollars to the cost of a new mortgage every month, convincing many would-be homeowners stay out of something the market. But the average mortgage rate had fallen to 6.09 percent by early February, prompting some to resume house hunting.
“Homebuyers are aware of changing mortgage rates and are benefiting from rate declines,” NAR chief economist Lawrence Yun said in a press release. “Additionally, we are seeing stronger sales growth in areas where property prices are falling and the local economy is creating jobs.”
Prices varied greatly from region to region. In the South and Midwest, home prices rose 2.7 percent and 5 percent, respectively, last year, according to NAR.
Prices fell in the Northeast, where the median home price fell 4.5 percent from a year earlier to $366,100, and in the West, where the median home price fell 5.6 percent to $541,100.
The surge in sales activity was driven by the West, where home sales rose 19.4 percent.
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Price action could be heavily dependent on what happens to interest rates, analysts say. Interest rates fell again last week as bank failures wreaked havoc on the financial system.
The Federal Reserve meets Tuesday and Wednesday to consider whether further rate hikes are needed to tame inflation. A decision on how much to change interest rates is expected on Wednesday.
Federal Reserve Chair Jerome H. Powell hinted in a speech before Congress that more aggressive rate hikes may be needed, but the collapse of two tech-focused banks has sparked speculation that the Fed may take a more cautious approach.
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Ali Wolf, chief economist at Zonda, wrote in a blog post on Tuesday that the spring’s strong selling season shows how real-time demand for real estate can react to interest rates as buyers wait for the perfect moment to pull the trigger for a long time . Purchasing plans maintained.
“The new question is: will consumers continue to celebrate the fall in mortgage rates, or will they be marginalized again by broader economic concerns?” Wolf asked.
Zillow Group chief economist Orphe Divounguy said the Fed was trying to “make a healing of the economy” but that more homes needed to be put up for sale for that healing process to be successful. Meanwhile, lower interest rates and lower prices could spur additional buying activity, he said.
“If you see a combination of falling prices and a sharp drop in mortgage rates, you could see a lot of activity,” Divounguy said in a recent interview.