Existing home sales rose by 3% m/m to 5.54 million units (annualized) in February, exceeding market expectations for a modest gain of 0.4% m/m.
All of the increase and then some was concentrated in the larger single-family segment where sales rose by 4.2% to 4.96 million units. Meanwhile, activity declined in the smaller condo/co-op segment (-6.5% m/m).
Activity was mixed across the country. Sales rebounded quite strongly in the South (+6.6% m/m) and West (+11.4% m/m), helping to offset a large decline in the Northeast (-12.3% m/m) and a modest one in Midwest (-2.4% m/m). Sales in the Northeast have been falling for three consecutive months, and are now 7.3% below their year-ago level.
Median prices remain up comfortably from a year ago. Nationally, the median sales price of an existing home was up 5.9% year-on-year, unchanged from the pace in January.
Rising prices reflect the continued tight supply conditions prevailing in the housing market. While the inventory of homes available for sale rose 4.6% in February, it is down 8.1% relative to a year ago.
Challenging affordability conditions amid rising prices and mortgage rates and low inventory can also be seen in a lower share of first time buyers in the markets. First time buyers accounted for 29% of sales in February, unchanged from last month and down from 32% a year ago.
Key Implications
The spring may have sprung in the U.S. housing market. January’s gain ended two months of decline in home sales, suggests that an improvement is on the way. Rising inventory of houses for sale (at least on a monthly basis) is also an encouraging sign and should support moderate improvement in resale activity in the near months.
Broadly speaking, economic conditions are in place for continued improvement in demand for housing: a tight labor market, accelerating wage gains and tax cuts. However, low inventory and deteriorating affordability amid rising home prices and interest rates will weigh on activity, keeping gains modest.
Green shoots did not appear everywhere in February as gains were uneven across the country. The outsized decline in the Northeast is especially disappointing. Unseasonably cold weather and a slew of winter storms are likely to blame for the slowdown. However, changes to MID and SALT deductions as a result of the federal tax reform could have also tempered resale activity in expensive Northeast housing markets, which are expected to be negatively impacted by the changes. For full analysis of the regional impact, please see our latest report.
