Love and worry in February, as home sales reach 2 1/2-year high but prices stall

A recession could increase listings and lower mortgage rates

A big bump in home listings and a drop in mortgage rates spread some love for homebuyers and home-sellers in February – and a more positive sign for the ever-important spring buying season. 

An adjusted annualized rate of 283,540 homes sold in February, an 11.6% increase from January and up a modest 2.6% from a year ago, according to the California Association of Realtors. The figure is how many homes would sell during a year based on the February pace (or about 23,600 homes sold in the month).

Better, but not great. Before the big cheers, there are some serious fears.

February home sales were the most since October 2022, but they have remained below the 300,000 level – considered the lowest threshold for a healthy housing market – since September 2022.

“The moderation in mortgage rates that began at the start of the year, coupled with a noticeable increase in homes for sale last month, provided a much-needed boost to California’s housing market in February,” says Jordan Levine, senior vice president and chief economist for CAR. “Although sales are still below historical averages, this increase marks an encouraging shift in the market.”

‘A POSITIVE TONE FOR THE MARKET’

But one month, or even two or three, does not end the multiyear slump of the housing market. 

For example, all seven regions, from Carlsbad to Yreka, enjoyed a boost in February sales compared to a month earlier, but only two of the seven regions – the Bay Area and Central Coast — reported gains from a year ago. 

“California home sales rebounded strongly in February after a sluggish start to the year, supported by increased buyer activity and more available homes on the market,” says CAR president Heather Ozur, a Palm Springs-area REALTOR. “Lower borrowing costs made homeownership more accessible to buyers who were previously sidelined by affordability challenges, while the rise in available inventory will help ease some of the competitive pressures that have defined the market in recent years and set a positive tone for the market for the rest of the year.”

ARE RECESSION WORRIES PROMPTING OWNERS TO MAKE A MOVE?

More homes on the market are a positive sign. But it could also be a warning sign, say some economists and housing experts.

“Are there home-sellers feeling economic changes more than they have before?” says Mike Simonsen, founder and president of real estate analytics firm Altos Research. “There is a lot of fear out there.”

Economic forces, including the return of higher inflation amid a trade war and the worries of a looming recession, could be on the minds of many sellers. 

Many owners have “a tremendous amount of wealth in their homes,” Simonsen says. “Homeowners are in such good shape. Some people have been waiting to sell their homes for three years.”

A changing economy, especially with the recent wild ride on the stock market, may be just the incentive many sellers need to make the move. More than half of homeowners in California are considered equity rich, with more equity than mortgage debt.

‘GETTING CLOSER TO A NEW NORMAL’

With more homes available, the slow-but-steady rise in home prices may stop or even slip with a recession, a growing possibility with the looming threat of a tariff trade war-prompted recession.

California’s median home price – meaning half the homes sold for more, the other half for less – was $829,060 in February, a 1.2% dip from January and up 2.8% from a year ago. The annual price has increased 20 straight months, but the gain in February was the smallest since July 2023. Six of the seven regions reported year-over-year price increases, but only the Central Coast topped a 6% gain (see table, below).

Mortgage rates are the key to opening more doors for buyers.

“Despite ongoing economic and policy uncertainties, mortgage rates are expected to stabilize later this year,” Levine says. “As a result, the housing market is likely to see continued improvement through the second and third quarters of 2025.”

Maybe. Or a recession could have a “shifting vibe on the economy,” where inventory soars and prices slump, Simonsen says. “Recession talk is back on the table.”

But even with the R-word floating around, the housing market is making strides to pre-pandemic levels. California’s active listings have increased almost 50% compared to a year ago and could be back to 2019 levels by the end of the year.

“We’re getting closer to a new normal,” Simonsen says.