Home prices, meanwhile, posted their first year-over-year decline since 2012, with the median U.S. home price falling 0.2 percent to $363,000.
The uptick in sales activity confirmed some economists’ claims that the U.S. housing market had already bottomed out in its year-long decline.
“The housing recession is over as spring rolls around earlier this year, and realtors are shouting hallelujah,” said Chris Roepke, chief economist at FWD Bonds, a New York-based market research firm.
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As skyrocketing prices in 2020 and 2021 collided with rising interest rates, the housing buying process became less affordable across the board, resulting in a housing recession. Home buying activity slowed significantly throughout 2022 as the Federal Reserve pumped the brakes on the economy and the conventional mortgage rate rose to 7.08 percent.
The housing market is particularly sensitive to interest rate fluctuations because most people acquire new homes with the help of a home equity loan, which incurs tens or hundreds of thousands of dollars in interest on top of the home’s price. That is of Central Bank Rate hikes added hundreds of dollars to the cost of a new mortgage each month, which convinced many homeowners. stay out market. But the average mortgage rate fell to 6.09 percent in early February, prompting some to restart their home search.
“Realizing that mortgage rates are changing, homebuyers are taking advantage of any rate declines,” NAR Chief Economist Lawrence Yun said in a press release. “Also, we’re seeing strong sales gains in areas where home prices are falling and local economies are adding jobs.”
Prices vary considerably from one region to the next. According to NAR, in the South and Midwest, home prices increased by 2.7 percent and 5 percent, respectively.
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, the median home price fell 5.6 percent to $541,100.
The increase in sales activity was driven by the West, which saw home sales increase by 19.4 percent.
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Analysts say the path of prices moving forward will depend on what happens to interest rates. Rates fell again last week as bank failures roiled the financial system.
The Federal Reserve meets on Tuesday and Wednesday to consider whether additional rate hikes are needed to control inflation. A decision on how much to change interest rates is expected on Wednesday.
Federal Reserve Chairman Jerome H. Powell hinted that more aggressive rate hikes may be needed in comments to Congress, but the failure of the two tech-focused banks has led to speculation that the Fed may take a more cautious approach.
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Zonda’s chief economist Ali Wolf wrote on Tuesday Blog A strong spring selling season shows how demand for housing can be sensitive to interest rates in real time, as buyers wait for the right moment to trigger long-term buying plans.
“The new question is – will consumers continue to celebrate the downward movement in mortgage rates, or will broader economic concerns hold them back?” asked the wolf.
Orphe Divounguy, senior economist at Zillow Group, said the Fed is trying to “heal the economy,” but that healing process needs more homes for sale to succeed. Meanwhile, lower prices and lower prices will encourage additional buying activity, he said.
“If prices come down and there’s a big drop in mortgage rates, you’re going to see a lot of activity,” Divounguy said in a recent interview.