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Existing home sales in February increased to the second highest level since March 2024, according to the National Association of Realtors (NAR). This rebound suggests buyers are slowly entering the market as inventory improves and mortgage rates decline from recent high in January. Despite rates easing, economic uncertainty may continue to constrain buyer activity.

While existing home inventory improves and the Fed continues lowering rates, the market faces headwinds as mortgage rates are expected to stay above 6% for longer due to an anticipated slower easing pace in 2025. These prolonged rates may continue to discourage homeowners from trading existing mortgages for new ones with higher rates, keeping supply tight and prices elevated. As such, sales are likely to remain limited in the coming months due to elevated mortgage rates and home prices.

Total existing home sales, including single-family homes, townhomes, condominiums, and co-ops, rose 4.2% to a seasonally adjusted annual rate of 4.26 million in February. On a year-over-year basis, sales were 1.2% lower than a year ago.

The first-time buyer share was 31% in February, up from 28% in January and 26% from a year ago.

The existing home inventory level was 1.24 million units in February, up from 1.18 million in January, and up 17.0% from a year ago. At the current sales rate, February unsold inventory sits at a 3.5-months’ supply, unchanged from last month but up from 3.0-months’ supply a year ago. This inventory level remains low compared to balanced market conditions (4.5 to 6 months’ supply) and illustrates the long-run need for more home construction.

Homes stayed on the market for an average of 42 days in February, up from 41 days in January and 38 days in February 2024.

The February all-cash sales share was 32% of transactions, up from 29% in January but down from 33% a year ago. All-cash buyers are less affected by changes in interest rates.

The February median sales price of all existing homes was $398,400, up 3.8% from last year. This marked the 20th consecutive month of year-over-year increases. The median condominium/co-op price in February was up 3.5% from a year ago at $355,100. This rate of price growth will slow as inventory increases.

Existing home sales in February were mixed across the four major regions. Sales rose in the South (4.4%) and West (13.3%), fell in the Northeast (-2.0%), and remained unchanged in the Midwest. On a year-over-year basis, sales increased in the Northeast (4.2%) and Midwest (1.0%), decreased in the South (-4.0%), and were unchanged in the West.

The Pending Home Sales Index (PHSI) is a forward-looking indicator based on signed contracts. The PHSI fell from 74.0 to an all-time low of 70.6 in January. This decline suggests elevated home prices and higher mortgage rates continue to constrain affordability. On a year-over-year basis, pending sales were 5.2% lower than a year ago, per National Association of Realtors data.

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Nationwide, the share of non-conventional financing for new home sales accounted for 32.4% of the market per NAHB analysis of the 2023 Census Bureau Survey of Construction (SOC) data. This is a significant 4.3 percentage point increase from the 2022 share of 28.1%. As in previous years, conventional financing dominated the market at 67.6% of sales, albeit lower than the 2022 share of 71.9%.

Non-conventional forms of financing, as opposed to conventional mortgage loans, include loans insured by the Federal Housing Administration (FHA), VA-backed loans, cash purchases and other types of financing such as the Rural Housing Service, Habitat for Humanity, loans from individuals, or state or local government mortgage-backed bonds. The reliance on non-conventional forms of financing varied across the United States, with its share at almost 40% in West South Central but only 17.1% of new single-family home starts in the Middle Atlantic division.

Nationwide, cash purchases were the majority share of non-conventional financing of new home purchases, accounting for 14% of the market share, slightly up from 13% in 2022. NAHB survey based on builders reported that for 2024, all-cash sales are a higher share at 22%. FHA-backed loans accounted for 12%, whereas in 2022, it was only 8% of the market share. The share of VA-backed loans was at 4% market share in 2023, while Other Financing was 3% of market share.

Regionally, cash financing held the highest share in East South Central, where 24.6% of all homes started were purchased with cash. Except for the South Atlantic, West South Central, and the Pacific, cash purchases led non-conventional financing in the remaining six census regions. Cash purchases accounted for 22.0% in East North Central, 16.9% in New England, 12.3% in Mountain, 12.0% in Middle Atlantic, and 10.6% in West North Central region.   

FHA-backed loans accounted for the majority of all non-conventional financing in the West South Central division accounting for 20.8% of the homes started. This share has gone up considerably  from 12.9% in 2022. The New England division reported the lowest FHA-backed loans with only a share of 1.2% of the homes started in 2023.

VA-backed loans were most used in the South Atlantic division, which accounted for 5.9% of non-conventional forms of financing. In New England, none of the homes started used VA-backed loans in 2023.  

Other financing such as the Rural Housing Service, Habitat for Humanity, loans from individuals, state or local government mortgage-backed bonds was highest in East North Central where it was collectively 5.6% of market share, while Middle Atlantic division reported the lowest share at 0.9%.

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This article was originally published by a eyeonhousing.org . Read the Original article here. .

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