First American is projecting that existing-home sales increased 1.4% percent in February compared withe January, rising to seasonally adjusted annual rate of 4.05 million.
Year-over-year, existing-home sales were down 11% compared with the actual pace of sales in February 2023, the firm says in its newly-released Existing-Home Sales Outlook.
“The narrowing mortgage rate spread was the largest driver of the projected increase in [the report],” says Mark Fleming, chief economist for First American, in a statement. “Approximately 90 percent of homeowners are financially disincentivized from selling their home in today’s housing market because it would cost more today to borrow the same amount of money they owe on their current mortgage.”
“In February, a narrowing of the spread between the average 30-year, fixed mortgage rate and the effective rate of interest on mortgage debt outstanding fueled a 1.3 percentage point increase in the projected monthly change in existing-home sales, an optimistic sign for the spring home-buying season,” Fleming says.
The new report forecasts existing-home sales based on the historical relationship between sales demographic trends, house-buying power, and the prevailing financial and economic conditions.
On average, nearly 40 percent of all existing-home sales in a year occur during the spring home-buying season between April and June. The warming weather and the end of the academic school year make for a more optimal time to move and fuel the seasonal increase in housing market activity, First American says in the report.
In the spring of 2023, home sales were lackluster. Housing inventory picked up compared with 2022, but remained near historic lows as mortgage rates hovered near a two-decade high, over a full percentage point higher than the prior spring.
Increasing household formation and credit availability, as well as strong economic conditions, helped boost the firm’s forecast for existing-home sales in February.
Combined, these macro-trends contributed 0.6 percentage points to February’s projected increase of 1.4%.
The average 30-year, fixed mortgage rate increased in February, reducing home-buying power, which dragged down the forecast by 0.1 percentage points.
Photo: Nicole Avagliano
