Existing home sales surged in February

Summary

Existing home sales hit strongest pace in a year

Existing home sales easily bested expectations and rose 9.5% during February. Although still relatively slow, the 4.38 million-unit pace marks the strongest pace since February 2023. The surprising strength is likely explained by the dip down in mortgage rates which occurred at the start of the year. Affordability is still a major headwind, but even a slight decline in financing costs looks like it was enough to pull buyers off of the sidelines. Inventory remains tight, but a small swell of new supply hitting the market was another factor driving the faster sales pace.

February's upturn is an encouraging sign that the resales recovery is underway. That noted, mortgage rates have ticked higher in recent weeks, which means further progress in the near term will likely be limited by affordability constraints. Looking further ahead, however, existing home sales should gradually trend higher this year alongside less restrictive monetary policy and slightly lower mortgage rates. For more on our housing outlook, please see Housing Market 2024: An Early Spring or Longer Winter?

Home buying picks up in February

• Total existing home sales jumped 9.5% during February, a monthly gain that comfortably beat consensus expectations. Single-family sales surged 10.3%, while condo and co-op sales rose 2.5%.
• The total sales pace hit 4.38 million units in February, which marks the strongest pace since February of last year.
• The surprisingly strong pickup in resales is partially explained by lower mortgage rates at the start of 2024. After peaking close to 8% in October 2023, the average 30-year rate fell to as low as 6.6% in the third week of January. This slight decline in financing costs looks like it was enough to pull buyers off of the sidelines, eventually leading to the sharp increase in contract closings during February.
• The reflation in sales was portended by a rise in mortgage applications for purchase at the start of the year. Purchase applications rose nearly 9% over the month in January, a jump that coincided with lower mortgage rates during the month. Prospective homebuyers have been further supported by a sturdy labor market marked by steady job and income growth.
• The supply picture is brightening somewhat, which also likely explains the stronger sales pace. The inventory of existing homes rose 5.9% over the month to 1.07 million, a count 10.3% higher than a year ago. An increase in new supply is helping to feed housing demand, but tight inventories remain a sticking point in the resale market. Total inventory was the equivalent of 2.9 months' supply at the current sales pace, down from 3.0 in January.
• Overall tight supply continues to exert upward pressure on home prices. The median existing home price rose 5.7% on a year-over-year basis during February. Given prices continue to rise, adverse affordability conditions will likely remain a headwind for the foreseeable future.
• February's strong rate of growth in resales is unlikely to be sustained in the near-term. Since mid-January, mortgage rates have ticked higher, with rates rising to an average of 6.8% in February. Consequently, mortgage purchase applications have stepped back a bit over the past several weeks, indicating some recent cooling in terms of buyer demand.
• Looking further out, however, existing home sales look poised for further improvement alongside lower interest rates this year. If the Federal Reserve begins easing monetary policy this summer as we currently anticipate, then mortgage rates should resume their decline and fall closer to 6% by year's end. For more on our housing outlook, please see Housing Market 2024: An Early Spring or Longer Winter?

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