Existing Home Sales Soared 14.5% in February. Here's What That Means for Buyers and Sellers

That's not necessarily a good thing, though.

Up until February, existing home sales were on a steady decline. And given the way mortgage rates soared in 2022, that decline was understandable.

But in February, existing home sales rose 14.5% compared to January, according to data from the National Association of Realtors (NAR). That marks the first monthly gain in 12 months and the largest increase in monthly home sales since July of 2020.

Compared to February of 2021, however, existing home sales fell 22.6%. And that's an important thing to note.

Why did existing home sales pick up?

Existing home sales are based on closings, which means home buyers probably contracted to buy the homes in question a few months prior, when mortgage rates had taken a temporary dip. Higher mortgage rates, which emerged in 2022, have been cooling the housing market, leading to fewer home sales and a decline in home prices. In February, the median home sale price was $363,000, a 0.2% decline from February 2022.

What buyers and sellers should know

Existing home sales data gives buyers and sellers insight on the state of the real estate market. When existing home sales decline for many months in a row, it can be an indication of a cooling or declining housing market. And that might inspire sellers to list their homes sooner rather than later. It might also inspire buyers to put in offers, thinking they'll have more bargaining power.

On the flipside, when home sales pick up month after month, it's a sign of a strong real estate market. And it signals that buyer demand is solid.

But the key to existing home sales is the patterns that emerge from it. A single month of higher existing home sales isn't necessarily an indication that buyer demand is about to surge once again. Rather, in this situation, there's a likely explanation for it.

Mortgage rates took a modest dip for a limited period of time, and buyers jumped on that. There may not be much more to the story than that.

Will 2023 be a good time to sell a home?

Based on where we're at today, the 2023 housing market might continue to favor sellers over buyers. Although home prices dropped in February compared to a year prior, that dip was quite modest. And also, right now, the U.S. housing market seriously lacks inventory.

The NAR reports that as of February, there was a mere 2.6-month supply of homes available. It normally takes at least a 4-month supply to create a balanced housing market. And in many cases, it takes more like a 6-month supply of homes to fully meet buyer demand.

Low housing inventory pretty much gives sellers a built-in upper hand. When buyers don't have many properties to choose from, they lose negotiating power. That means home prices might remain expensive on a national scale in 2023.

That's good news for sellers. But at a time when it's gotten so costly to sign a mortgage, it puts buyers in a very tough spot.