(Bloomberg) -- US sales of previously owned homes rose in February by the most since mid-2020, snapping a record year-long slide tied to rising interest rates and affordability constraints.

Contract closings increased 14.5% last month to an annualized pace of 4.58 million, according to data released Tuesday by the National Association of Realtors. Both the monthly advance and rate of sales exceeded the highest forecasts in a Bloomberg survey of economists.

“Conscious of changing mortgage rates, home buyers are taking advantage of any rate declines,” Lawrence Yun, NAR’s chief economist, said in a statement. “Moreover, we’re seeing stronger sales gains in areas where home prices are decreasing and the local economies are adding jobs.”

While mortgage rates are down from their peak, and may ease further as banking turmoil drives Treasury yields lower, the market for previously owned homes may continue to struggle because of a lack of inventory. Many homeowners have lower-rate mortgages, offering them little incentive to relocate.

The number of homes for sale held at 980,000 in the month. It would take 2.6 months to sell all the homes on the market. Realtors see anything below five months of supply as indicative of a tight market. 

The pace of sales in February was the strongest in five months. Despite the increase, residential real estate remains depressed against the backdrop of the Federal Reserve’s aggressive policy tightening campaign that sent mortgage rates soaring last year and sidelined many prospective buyers.

Lending Standards

The recent troubles in the banking sector also risk prompting lenders to tighten loan standards that could thwart any momentum in residential real estate.

The median selling price of a previously owned home fell 0.2% from a year earlier to $363,000 in February, according to NAR. The decline was the first in 11 years, ending a record string of annual gains.

Some 57% of homes sold were on the market for less than a month. Properties remained on the market for 34 days on average in February, nearly twice as long as a year earlier.

Existing-home sales account for about 90% of US housing and are calculated when a contract closes. Data on new-home sales, which make up the remainder, are based on contract signings, will be released Thursday.

Digging Deeper

  • Sales strengthened in all regions, led by double-digit increases in the West, South and Midwest
  • The median selling price in the West dropped 5.6% from a year ago and may have helped bolster demand, Yun said
  • First-time buyers made up a historically low 27% of purchases in February, down 4 percentage points from a month earlier
  • Cash sales represented 28% of total sales. Investors, who often purchase with cash and are therefore less sensitive to mortgage rates, made up 18% of the market
  • Sales of single-family homes increased 15.3% to an annualized 4.14 million, the highest since September. Existing condominium and co-op sales also rose from a month earlier

--With assistance from Jordan Yadoo and Molly Smith.

(Adds graphic)

©2023 Bloomberg L.P.