Coming in Better Than Expected

*       Existing home sales rose 4% in February, against expectations for a drop.
 
*       Sales were up in the South and the West, down in the Northeast, and flat in the Midwest.

*       Single-family home sales increased while condo/co-op sales fell.
 
*       Low inventory and a lack of supply are keeping home prices elevated in early 2025.
 
*       PNC expects the still-solid US labor market and falling mortgage rates to support a gradual recovery in the existing home market in 2025. 

Total existing home sales increased 4% in February to 4.26 million units at a seasonally-adjusted annualized rate, after falling 5% to 4.09 million units in January, according to the National Association of Realtors (NAR). The consensus expectation was for a small decline in sales in February. After smoothing out some of the monthly volatility, the three-month moving average of total existing home sales increased about 1% in February. Existing home sales remain near historic lows in early 2025, and are considerably below the pre-pandemic peak of 5.6 million. On a year-ago basis, total existing home sales fell 1.2% in February, compared to a 2.3% decline in January. Regardless of home type, existing home sales are near record lows in early 2025, weighed down by the elevated 30-year fixed mortgage rate.

Monthly sales increased 13% in the West and 4% in the South over the month, fell 2% in the Northeast, and were unchanged in the Midwest. From a year ago, seasonally-adjusted sales were up 4% in the Northeast and 1% in the Midwest in February, but were down 4% in the South and flat in the West.

Single-family home sales rose 6% to 3.89 million units in February, while sales of condos and co-ops dipped 10% to 0.37 million on the month. Both were down from last year.

The inventory of total existing homes increased for a second straight month to 1.24 million units, up 5% in February. The seasonally-unadjusted inventory dipped in December 2024, but recovered somewhat in early 2025. The supply of single-family homes increased from 3.2 months at the current sales pace in December to 3.5 months in January and February. Lower mortgage rates later this year should help boost inventories as more households consider moving. Condo and co-op supply jumped 9% in February, to 4.8 months at the current sales pace.

The median seasonally-unadjusted sales price was $398,400 in February, an increase of 3.8% year-over-year. With strong cumulative house price growth since the pandemic and the 30-year fixed mortgage rate close to 7%, housing affordability is near a record low. Even so, house price growth has been in the low single digits since mid-2023, supported by low inventories.

Existing home sales in February were much stronger than the consensus expectation of 3.95 million. The US labor market is solid with job gains of 150,000 in February and initial unemployment insurance claims remaining low in mid-March, supporting homebuying in early 2025. The 30-year fixed mortgage rate is up from last fall but has been falling in 2025. Continued job gains and a gradual drop in mortgage rates will support gains in existing home sales over the coming months, but federal government layoffs are a downside risk. PNC expects existing home sales to increase this year with lower mortgage rates and continued low unemployment. However, tariffs remain a risk for inflation, and less monetary easing from the Federal Reserve than expected could keep mortgage rates elevated and weigh on the housing market.

PNC Bank, National Association, is a member of The PNC Financial Services Group, Inc. (NYSE: PNC). PNC is one of the largest diversified financial services institutions in the United States, organized around its customers and communities for strong relationships and local delivery of retail and business banking including a full range of lending products; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-based lending; wealth management and asset management.