February brings some love to home sales and prices. But will it last?

Despite higher mortgage rates, more buyers are moving forward with purchases 

Home shoppers shrugged off the latest round of higher mortgage rates and moved forward on buying homes in February, with the most sales in more than 18 months.

Completed sales reached a seasonally adjusted annualized rate of more than 290,000 homes in February, a 12.8% increase compared to January – and up 1.3% from a year ago, according to the California Association of Realtors. (The adjusted annualized figure relates to about 24,170 sales in February.) 

February was the second consecutive month of double-digit gains, and the most sales since September 2022. But sales remained below the 300,000 level for the 17th straight month. Better but not great news.

The Bay Area and Central Coast – from Santa Barbara to Santa Cruz – enjoyed the largest annual home sale increases at 15% and 19%, respectively (see table, below). Those markets also reported the largest and third-largest price gains compared to a year ago, the latest evidence of supply and demand economics in the housing market.



Consumers are finding a few more homes available – active listings increased on a year-over-year basis for the first time in 11 months – and homebuyers are apparently more willing to live with 6.5%-plus mortgage rates, at least until rates tick lower and mortgages can be refinanced.

“Housing supply conditions in California continued to improve in February with new active listings rising more than 10% for the second straight month,” says CAR president Melanie Barker. “This is great news for buyers who have been competing for a dearth of homes for sale, and the momentum will hopefully build further as we enter the spring home-buying season.”

MILLION-DOLLAR HOMES ARE POWERING PRICE GAINS

But buyers continue to deal with near-record home prices. California’s median home price – meaning half the homes sold for more, the other half for less – reached $806,490 in February, a 2.2% increase from January and a 9.7% gain from a year ago (see table, below). It’s the eighth consecutive month of annual price increases and the 10th time in 11 months above the $800,000 mark.

Million-dollar homes are helping lift prices, while the lower-priced housing market is still struggling. Many of higher-end buyers are affected little by rising mortgage rates, opting to pay cash for homes.

Every day Californians looking to buy will continue to face the highest mortgage rates in a generation and near-record prices, further creating an income divide in the state. Fewer than one of every seven households could afford to buy the median-priced home during the fourth quarter in California.

And the problem will persist. Mortgage rates will likely remain elevated, at least compared to just a few years ago, and prices should move higher, housing experts say.



MORTGAGE RATES HINGE ON INFLATION AND JOBS

Fannie Mae expects mortgage rates to remain above the 6.5% mark for the remainder of the year, especially as the Federal Reserve grapples with a new round of “hotter-than-expected inflation data and strong payroll numbers,” says Doug Duncan, Fannie Mae senior vice president and chief economist. “While we don’t expect a dramatic surge in the supply of homes for sale, we do anticipate an increase in the level of market transactions relative to 2023, even if mortgage rates remain elevated.”

Altos Research president Mike Simonsen says buyers have become more comfortable with higher rates in recent months, but are more cautious when rates spike abruptly.

“Consumers have been feeling more positive about buying and selling since the beginning of the year, as increases in sales activity and home prices are reflected in the latest improvement in optimism,” says Jordan Levine, CAR senior vice president and chief economist. “While the recent upward movement in interest rates may result in more moderate sales in March, we expect homebuyers on the sidelines to reenter the market as the economy slows and rates begin to trend down again in the second quarter.”

Home prices and sales in February compared to a year ago

RegionMedian home price% gain or loss vs. a year agoHome sales vs. a year ago
California$806,490+9.7%+1.3%
Bay Area$1.26 million+22.6%+14.9%
Central Coast$950,000+11.0%+18.7%
Central Valley$478,200+6.3%+0.8%
Far North$379,000+2.7%+12.5%
Inland Empire$576,500+4.8%+3.9%
Los Angeles$790,000+11.3%+6.7%
Southern California$825,000+10.8%+7.0%

Source: California Association of Realtors