Sales of existing homes climbed in February, with an increase in buyers driving prices up as the economy continues its recovery.
Purchases rose 0.8 percent to a seasonally adjusted annual rate of 4.98 million homes in February, according to data released by the National Association of Realtors on Thursday. The rate is now more than ten percent higher than it was a year ago, and at its highest level since November 2009.
“This deflationary cycle that has plagued the housing market is ending,” said Ryan Sweet, senior economist at Moody’s Analytics. “A lot of pent up demand has formed. With the economy looking better, people are starting to see this as a good time to buy.”
More homeowners are putting their homes on the market, although inventory still remains low by historical standards. There is currently a 4.7 month supply of houses for sale, compared to a 4.3 month supply a month ago. A six or seven month supply of homes is considered a normal inventory level.
The lack of supply has pushed the median home price higher. It is now $173,600, which is 11.6 percent higher than it was in February 2012. The year-over-year gain is the biggest since November 2005.
The increased home values will serve to help the economy, estimated Scott Anderson, chief economist at Bank of the West.
“For every dollar increase in housing wealth, people tend to spend between three to five more cents than they otherwise would have,” he said. “It’s not unusual for housing values to go up a trillion dollars in a year, so that adds up to real money getting put in the economy.”
Many homeowners who are behind on their mortgages have been holding off on selling until they can break even on their home. The rise in prices will finally allow them to do so, which will further expand the pool of sellers.
Mortgage rates have continued to hover near historical lows, but some economists forecast increases over the next year, which may actually drive sales up.
“In the short term, a gradual increase in mortgage rates could do wonders for the housing market,” Sweet said. “It could create a sense of urgency for buyers in saying that these rock bottom rates won’t last forever. Because odds are that once these rates rise, we’re not likely to see them so low again any time soon, if ever.”
Adam Eldridge, a prospective first time buyer looking for a home in New Jersey, was motivated by uncertainty about mortgage rates. Though he knew if he mistimed his purchase he might pay a little more for the home, he took it as a given that mortgage rates would not rise.
“Once I heard that rates might go up soon, not acting could mean I’m throwing money away,” he said. “I’m going to be paying for this into my fifties, so it’s not like waiting too long is a passing mistake.”
Other buyers have been encouraged by the economy, according to Michael Martinez, a real estate agent in Florida. The increased confidence has motivated them to buy.
Housing starts rose to a seasonally adjusted annual rate of 917,000, a 28 percent increase over a year ago. Each new home built creates about three jobs for a full year, according to the National Association of Homebuilders. These figures have helped employers add 236,000 jobs in February, which dropped the unemployment rate to 7.7 percent, the lowest it has been in four years.
“Lately some of my buyers have told me they see less risk in making such a big investment,” Martinez said. “They’re more secure in their jobs and making more money, so the time is right.”