U.S. Home Sales Jump Unexpectedly, Housing Prices Continue to Rise

Home sales and home prices are both rising, with sales showing a reversal of recent weakness that could indicate renewed strength in the American housing market.

Although economists warn that home prices are continued to price out a growing number of Americans, home sales rose 3.5% in February. Some parts of the country, however, are much weaker, as the Northeast saw a 0.2% decline in home sales. The Midwest was the strongest performer, with an 11.4% increase in sales. The South rose 2.1% from January, but actually fell from a year ago.

Home sales and home prices are both rising, with sales showing a reversal of recent weakness that could indicate renewed strength in the American housing market.

Although economists warn that home prices are continued to price out a growing number of Americans, home sales rose 3.5% in February. Some parts of the country, however, are much weaker, as the Northeast saw a 0.2% decline in home sales. The Midwest was the strongest performer, with an 11.4% increase in sales. The South rose 2.1% from January, but actually fell from a year ago.

Better weather in February meant better home sales activity compared to the same month in 2015, helping the Northeast see a 12.6% increase from a year ago.

Still, National Association of Realtors (NAR) Chief Economist Lawrence Yun highlighted the volatility in the market but remained upbeat about the future. “After some volatility this winter, the latest data is encouraging in that a decent number of buyers signed contracts last month, lured by mortgage rates dipping to their lowest levels in nearly a year and a modest, seasonal uptick in inventory,” he said.  He added, “a lack of inventory could cause sales to decline—and prices to rise—later in the year”.

“Looking ahead, the key for sustained momentum and more sales than last spring is a continuous stream of new listings quickly replacing what’s being scooped up by a growing pool of buyers. Without adequate supply, sales will likely plateau,” he said.

The National Association of Realtors also noted that price gains moderated to 4.4% from 8.1% in January, which was helping to keep homes in reach for middle class American buyers. Still, Yun noted that this was far above the rate of inflation and could be pricing out many buyers.

“Any further moderation in prices would be a welcome development this spring. Particularly in the West, where it appears a segment of would-be buyers are becoming wary of high asking prices and stiff competition.

The NAR expects existing home sales to rise 2.4% on a year-over-year basis in 2016, reaching 5.38 million. The NAR also expects a 4% to 5% increase in median existing home price sales.

Inflation rates according to the Consumer Price Index have failed to breach 2%, and real wage growth has been mostly flat for several years. As a result, home price increases are double the price gains of other goods and services in the economy, making housing increasingly unaffordable.

With this gain compounded on top of January’s 8.1% increase, economists fear that the housing market will find fewer and fewer buyers, pressuring sellers to offload homes, which might possibly create a ripple effect throughout the economy.