US Home Sales Surge in February: What's Driving the Market?

The housing market in the United States has seen a significant surge in February 2025, with existing-home sales rising by 4.2% to a seasonally adjusted annual rate of 4.26 million. This increase, coupled with a median home price nearing $400,000, has analysts buzzing about the next big move in the market. But what's driving this surge, and is it sustainable?

One of the key factors driving the recent surge in home sales is the increase in housing inventory. According to the National Association of REALTORS®, the inventory of unsold existing homes climbed 5.1% from the prior month to 1.24 million at the end of February. This increase in supply has provided more options for buyers, releasing pent-up housing demand. Lawrence Yun, NAR Chief Economist, stated, "Home buyers are slowly entering the market. Mortgage rates have not changed much, but more inventory and choices are releasing pent-up housing demand."

Another factor contributing to the surge is the stabilization of mortgage rates. Although mortgage rates have not changed significantly, the 30-year fixed-rate mortgage averaged 6.65% as of March 13, 2025, which is down from 6.74% one year ago. This slight decrease has made home buying more affordable for some potential buyers.

However, the sustainability of these trends in the long term is uncertain. While the increase in inventory and stabilization of mortgage rates are positive signs, other economic factors could impact the housing market. For instance, consumer and business sentiment have dropped amid President Donald Trump's trade policies and the administration's campaign to shrink the federal government. These factors could weigh on the housing market and limit further gains in home sales.

Additionally, the economic outlook has dimmed, which could affect the housing market. The Federal Reserve held its benchmark overnight interest rate in the 4.25%-4.50% range, but policymakers indicated they still anticipate reducing borrowing costs by half a percentage point by the end of the year. This could impact mortgage rates and, consequently, home sales.

The current median home price of nearly $400,000, as reported on March 20, 2025, represents a significant increase from previous years. Specifically, the median existing-home sales price rose 3.8% from February 2024 to $398,400, marking the 20th consecutive month of year-over-year price increases. This trend indicates a sustained period of rising home prices, which has implications for future market stability.

Historically, home prices have been on an upward trajectory. For instance, the median existing-home price in February 2024 was $383,800, and it has continued to rise, reaching $398,400 in February 2025. This consistent increase suggests that home prices are not only high but also continuing to climb, which could lead to affordability issues for potential buyers.

The implications of this trend for future market stability are multifaceted. On one hand, rising home prices can indicate a strong market with high demand. However, it also means that fewer people may be able to afford to buy homes, potentially leading to a slowdown in sales. As Lawrence Yun, NAR Chief Economist, noted, "Each one percentage point gain in home price translates into an approximately $350 billion increase in housing equity for American property owners. That means a gain of nearly $1.3 trillion in home value appreciation at a time when the current stock market is undergoing a correction." This suggests that while current homeowners may benefit from increased equity, the high prices could deter new buyers, potentially stabilizing or even slowing the market.

Additionally, the inventory of unsold existing homes climbed 5.1% from the prior month to 1.24 million at the end of February, or the equivalent of 3.5 months' supply at the current monthly sales pace. This increase in inventory, coupled with the high median home price, could lead to a more balanced market where supply and demand are better aligned, potentially stabilizing prices in the future. However, the current high prices and limited inventory could also lead to a situation where prices continue to rise, making homes even less affordable for many buyers.

In conclusion, while the recent surge in US home sales can be attributed to an increase in housing inventory and stabilization of mortgage rates, the sustainability of these trends in the long term is uncertain due to other economic factors and the dimmed economic outlook. The current median home price of nearly $400,000, while indicative of a strong market, also raises concerns about affordability and future market stability. As the housing market continues to evolve, it will be crucial for buyers, sellers, and investors to stay informed about these trends and their potential implications.