The shortest month of the year managed to pack quite the punch for the housing market.
February saw the national median home list price climb to a new record high of $392,000, according to a Realtor.com® report. That hefty price tag is up an overall 12.9% compared with the previous year.
And while that double-digit percentage spike already sounds substantial, consider the fact that home prices have skyrocketed a full 26.6% compared with February 2020—right before the COVID-19 pandemic sent the housing market into overdrive.
This news couldn’t come at a worse time for buyers hoping to land an affordable home right now.
“Median home prices reached an all-time high in February just as mortgage rates surged to the highest level in almost three years,” says George Ratiu, senior economist at Realtor.com.
In effect, homebuyers are hit on two fronts at once, “compounding the squeeze on consumers’ budgets from inflation and making it harder for buyers to afford a home,” adds Ratiu.
Over the past six months, mortgage rates increased by an entire percentage point, with the 30-year fixed-rate loan averaging 3.89% for the week ending Feb. 24, according to Freddie Mac. This has raised alarm bells among buyers who believe they should get moving on their house hunt now, before rates rise even higher.
“Buyers today are feeling a sense of urgency brought on by both rising home prices and rising mortgage rates,” says Ali Wolf, chief economist at Zonda, a housing data and consultancy firm. “There’s this fear that if they don’t buy today, they may never be able to.”
Has the spring homebuying rush already arrived?
In addition to struggling with high home prices and rising interest rates, today’s buyers are facing a market where home sales are happening at an alarmingly brisk pace already. While January and February traditionally serve as a slow ramp-up to the bustling spring homebuying season, the housing market is already heating up.
Realtor.com data shows that homes sold in an average of 47 days in February. That breaks down to buyers scooping up properties 17 days faster than the same time last year, and 32 days quicker—more than an entire month—compared with February 2020.
So what does this mean for buyers looking to snag a home this March, or beyond? It’s going to be a pricey, competitive, and early spring homebuying season. However, there are signs of a thaw…
A ray of hope for homebuyers
Given rising home prices and interest rates, many homebuyers might think it’s not worth diving into the spring housing market at all. But Ratiu thinks that buying a home now, even in this feverish market, is generally a smart move for the long run.
“For people weighing their options, they should consider their time horizon and individual circumstances,” says Ratiu.
“If they plan to live in their current city for the next three to five years, leveraging current mortgage rates to lock in a fixed monthly payment, even at today’s higher listing prices, can provide a much-needed cushion in the face of rising inflation and rents,” he says.
There’s also a ray of hope peeking out from the darkness: While sellers were listing their homes at rates 13.8% lower than the average February levels seen in 2017 to 2020, the number of new listings increased in the month’s final two weeks.
“Buyers can expect to see an improvement in the number of homes for sale this spring, a much-anticipated development for housing markets,” says Ratiu. “A growing share of homeowners [are] ready to move with pandemic-delayed plans, indicating they plan to list their properties. As we gaze toward a post-pandemic spring in the months ahead, markets are likely to benefit from [a] higher supply of both existing as well new homes.”
Four metropolitan areas that saw an improvement in listings are Riverside, CA (+6.3%), Phoenix (+4.2%), Austin, TX (+1.5%), and Sacramento, CA (+0.3%), marking the first time since October 2021 that any of the 50 largest metros saw an increase in homes for sale. Metros include the main city and surrounding towns, suburbs, and smaller urban areas.
“While the national market remains competitive, there are cities where an influx of new construction, combined with a rising supply of existing homes, is leading to a rising share of price reductions,” says Ratiu. “In these markets, buyers may benefit from improved opportunities once the selling season gets underway.
“Finally, at long last, there is a glimmer of some welcome good news for buyers,” he says, “a sign that the overheated market of the past year is normalizing.”