Pevita Pearce
Existing-home sales saw a notable increase of 1.7% month-over-month in February, reaching a seasonally adjusted annual rate of 4.38 million units, according to the National Association of REALTORS® (NAR) latest Existing-Home Sales Report. This uptick signals a positive trend for the real estate market, offering crucial data on sales volume, pricing, and inventory levels for agents, homebuyers, and sellers alike. The report, a cornerstone for understanding the dynamics of the housing sector, also highlighted a significant improvement in housing affordability, marking the eighth consecutive month of gains.
The positive sales momentum was not uniform across all regions. The Midwest, South, and West experienced month-over-month increases in sales. Conversely, the Northeast saw a decline in existing-home sales during the same period. On a year-over-year basis, only the South region reported an increase in sales, while the Northeast, Midwest, and West all experienced decreases. This regional disparity underscores the varied economic conditions and housing market specificities present across the United States.
A key driver behind the increased sales activity is the sustained improvement in housing affordability. NAR’s Housing Affordability Index, a critical measure for consumers, climbed to 117.6 in February. This represents a modest increase from 117.1 in January and a substantial jump from 103.1 recorded in February of the previous year. This February reading marks the highest level of housing affordability observed since March 2022, offering much-needed relief to potential buyers who have faced significant affordability challenges in recent years. The index measures whether a family earning the median income can afford a typical home, with a higher number indicating greater affordability.
Dr. Lawrence Yun, NAR’s Chief Economist, commented on the market’s performance, stating, "Housing affordability is improving, and consumers are responding." He further elaborated on the current landscape, noting, "Still, there is a long way to go to return to pre-pandemic levels of transaction activity. There are more than 6 million more jobs than in 2019, yet home sales per year are down by one million." This observation by Dr. Yun points to a disconnect between overall economic growth and the housing market’s recovery, suggesting that while conditions are improving, they have not yet reached the robust transaction volumes seen prior to the pandemic.
Dr. Yun also provided further context on the strength of demand relative to economic gains. "Despite the modest gain in home sales, actual housing demand remains muted relative to wage growth and job gains," he continued. "Wage growth is now outpacing home price growth by almost four percentage points. Mortgage rates are also measurably lower compared to a year ago." This analysis highlights that while home prices have seen some appreciation, the rate of wage growth has surpassed it, coupled with a reduction in mortgage interest rates compared to the previous year. This combination of factors contributes to a more favorable purchasing environment for many households.
The issue of housing supply remains a critical concern for market stability and affordability. Dr. Yun emphasized this point, stating, "Inventory is growing, but sluggishly." He cautioned about the potential consequences of an imbalance between supply and demand: "If demand picks up notably in the coming months and outpaces supply growth, home prices will inevitably rise. That is why increasing supply is so important to help limit home price growth, improve housing affordability, and boost transactions." The slow but steady increase in inventory is a positive sign, but the pace is crucial. A significant surge in demand without a commensurate increase in supply could reignite price pressures and diminish the affordability gains achieved thus far.
National Snapshot: February Housing Market Performance
The February Existing-Home Sales Report from NAR provides a comprehensive overview of the national housing market. The 1.7% month-over-month increase in total existing-home sales brought the annualized rate to 4.38 million units. This figure is below the pace seen in recent years but reflects the ongoing recovery in the market.
Inventory in February
The total housing inventory at the end of February rose to 1.13 million units, a 5.9% increase from January and a 9.5% jump from the previous year. While this represents a positive trend towards a more balanced market, the supply of homes for sale remains below pre-pandemic levels. The months’ supply of homes for sale stood at 3.1 months at the current sales pace, up from 3.0 months in January and 2.7 months in February 2023. An ideal market typically has a 4-6 month supply.
Median Sales Price in February
The median existing-home price for all housing types in February was $384,500, an increase of 5.0% from February 2023. This indicates that while affordability is improving, home prices continue to appreciate year-over-year, albeit at a slower pace than in some previous periods. The median price for single-family homes was $388,000, up 4.7% from a year ago. For condominiums and co-ops, the median price was $355,000, an increase of 8.3% year-over-year.
Housing Affordability in February
As previously noted, housing affordability saw a significant improvement in February. The NAR Housing Affordability Index reached 117.6, up from 117.1 in January and 103.1 in February of the prior year. This rise is attributed to a combination of factors, including lower mortgage rates and moderating home price growth relative to income. A key component of this improvement is the decrease in the average 30-year fixed mortgage rate, which hovered around 6.74% in February, down from 7.09% in January and 7.72% in February 2023, according to Freddie Mac data.
Single-Family and Condo/Co-op Sales in February
Existing single-family home sales increased by 1.9% in February to an annualized rate of 3.90 million, up from 3.83 million in January and down 2.7% from the previous year. The median existing single-family home price was $388,000 in February, an increase of 4.7% from February 2023.
Existing-home sales of condominiums and co-ops declined by 1.7% in February to an annualized rate of 480,000 units, down from 490,000 in January and down 8.5% from one year ago. The median condominium price was $355,000 in February, an increase of 8.3% from February 2023.
Regional Snapshot for Existing-Home Sales in February
The performance of existing-home sales varied considerably across the four major U.S. regions:
- Northeast: Sales in the Northeast region decreased by 4.7% month-over-month in February, reaching an annualized rate of 610,000 units. Year-over-year, sales in the Northeast were down 10.3%.
- Midwest: The Midwest region experienced a 2.6% increase in sales month-over-month, with an annualized rate of 1.02 million units. However, year-over-year sales in the Midwest fell by 4.7%.
- South: The South region saw a robust 3.5% increase in sales month-over-month, reaching an annualized rate of 1.81 million units. This region was the only one to report year-over-year growth, with sales up 0.6% compared to February 2023.
- West: Sales in the West region rose by 0.7% month-over-month, with an annualized rate of 1.44 million units. Year-over-year, sales in the West declined by 9.1%.
REALTORS® Confidence Index for February
NAR’s REALTORS® Confidence Index (RCI) for February provides insights into the sentiment of real estate professionals. The RCI survey, which gauges the sentiment of REALTORS® regarding current and future market conditions, showed a mixed picture. While some indicators may suggest optimism due to improving affordability, the overall sentiment reflects the ongoing challenges of low inventory and the need for greater transaction activity to reach pre-pandemic norms. Historically, the RCI has been a leading indicator for housing market activity, and its trends can offer predictive insights into future sales volumes and price movements. A detailed breakdown of the RCI for February would typically include specific percentages for factors such as the percentage of REALTORS® reporting an increase in traffic, the percentage expecting home prices to rise, and the percentage reporting contract rejections due to financing or appraisal issues. These metrics are crucial for understanding the granular challenges and opportunities faced by real estate agents on the ground.
Mortgage Rates and Their Impact
Mortgage rates play a pivotal role in housing affordability and market activity. The average rate for a 30-year fixed-rate mortgage in February 2024 was approximately 6.74%, as reported by Freddie Mac. This is a significant decrease from the 7.72% average seen in February 2023. This reduction in borrowing costs directly translates into lower monthly payments for homebuyers, making homeownership more attainable. For example, a $300,000 mortgage at 7.72% would have a principal and interest payment of approximately $2,149 per month, whereas at 6.74%, the payment drops to approximately $1,955 per month, a saving of over $190 per month. This difference can be substantial over the life of a loan and can influence a buyer’s purchasing power. The continued moderation in mortgage rates, coupled with the ongoing improvement in housing affordability, is expected to support continued demand in the coming months, provided that inventory levels can keep pace.
Broader Implications and Outlook
The February Existing-Home Sales Report presents a nuanced view of the U.S. housing market. The 1.7% increase in sales and the eighth consecutive month of improved affordability are positive indicators, suggesting that the market is gradually recovering from the headwinds of high interest rates and affordability challenges. However, Dr. Yun’s comments highlight that the market is still operating below its potential, especially when compared to the growth in jobs and wages.
The persistent issue of low housing inventory remains a critical factor. While inventory is growing, it is doing so "sluggishly." This limited supply continues to put upward pressure on home prices, even with improved affordability. The delicate balance between supply and demand will be crucial in determining the trajectory of home prices and the pace of future sales. If demand outstrips supply, as Dr. Yun warns, price appreciation could accelerate, potentially reversing some of the affordability gains.
The regional disparities also warrant attention. The South’s continued year-over-year growth suggests a stronger underlying demand and potentially more favorable market conditions in that region compared to others. The Northeast, Midwest, and West experienced year-over-year declines, indicating that these regions may face more significant challenges in terms of affordability or inventory.
Looking ahead, the real estate ecosystem will be closely watching several key factors: the future path of mortgage rates, the pace of new housing construction and existing home listings, and the overall economic health of the nation. The Federal Reserve’s monetary policy decisions, particularly regarding interest rates, will continue to influence mortgage rates. Furthermore, the effectiveness of initiatives aimed at boosting housing supply will be paramount in addressing the long-term affordability crisis.
For real estate professionals, understanding these trends is vital for advising clients effectively. Buyers may find more favorable conditions than in recent years, but the competition for well-priced, desirable homes remains. Sellers can benefit from the continued demand, but pricing their homes appropriately in a market with slowly rising inventory is key. The NAR’s ongoing research and reporting will remain indispensable for navigating this evolving market landscape. The report underscores that while progress is being made, the journey towards a fully robust and accessible housing market is ongoing, requiring sustained efforts to address supply constraints and ensure long-term affordability.
