LOS ANGELES — Sales of previously occupied U.S. homes rose in February as easing mortgage rates and more properties on the market encouraged home shoppers.

Existing home sales rose 4.2% last month from January to a seasonally adjusted annual rate of 4.26 million units, the National Association of Realtors said Thursday.

Sales fell 1.2% compared with February last year, ending a string of five straight annual increases. The latest home sales topped the 3.92 million pace economists were expecting, according to FactSet. On an unadjusted basis, sales fell 5.2% from February last year, when the month included an extra day because 2024 was a leap year.

Home prices increased on an annual basis for the 20th consecutive month. The national median sales price rose 3.8% in February from a year earlier to $398,400, an all-time high for the month of February. All told, the U.S. median home sales price is up 47% over the last five years.

“Home buyers are slowly entering the market,” said Lawrence Yun, NAR’s chief economist. “Mortgage rates have not changed much, but more inventory and choices are releasing pent-up housing demand.”

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Housing Market Recovery

The U.S. housing sales began to slump in 2022, when mortgage rates began to climb from pandemic-era lows. Sales of previously occupied U.S. homes fell last year to their lowest level in nearly 30 years.

While the average rate on a 30-year mortgage briefly fell to a 2-year low last September, it didn’t stay there long, climbing to just above 7% by mid-January. Mortgage rates mostly declined since then, sliding to an average of 6.76% by the last week of February. The rate averaged 6.65% last week, according to mortgage buyer Freddie Mac.

That’s more than double the 2.65% record low that the average rate reached a little over four years ago.

A lag of a month or two usually exists between when a contract is signed and when the home sale is finalized, so the recent pullback in rates may point to improved sales this month as the spring homebuying season gets going.

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Market Challenges Persist

Still, Yun said a survey of NAR member real estate agents showed that buyer traffic was down in February from a year earlier, while seller traffic was up.

“(The) market clearly needs lower interest rates to fundamentally lift it a little higher on a sustained basis,” Yun said.

Rising home prices and elevated mortgage rates, which can add hundreds of dollars a month in costs for borrowers, have frozen out many would-be homebuyers and discouraged homeowners who locked in ultra-low mortgage rates a few years ago from selling.

These trends have made it especially tough on first-time buyers, as they don’t have equity from an existing home to put toward a new home purchase.

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First-Time Buyers and Cash Purchases

Even so, they accounted for 31% of all homes sold last month, up from 28% in January and 26% in February last year. The annual share of first-time buyers fell last year to a record-low 24%. It’s been 40% historically.

Homebuyers who paid all cash for a home accounted for 32% of sales last month, up from 29% in January, NAR said.

Those who can afford to buy at current home loan rates or to sidestep them entirely by paying cash also stand to benefit from a wider selection of properties on the market.

There were 1.24 million unsold homes at the end of last month, up 5.1% from January and up 17% from February last year, NAR said.

That translates to a 3.5-month supply at the current sales pace, unchanged from January and up from a 3-month pace at the end of February last year. Traditionally, a 5- to 6-month supply is considered a balanced market between buyers and sellers.

Yun said the months’ supply shows the housing market remains tight, adding he would like to see 30% more homes for sale for the market to be more balanced between buyers and sellers.

“In the spring and summer months, we will have more inventory,” he said.

One reason the inventory of homes for sale has been rising is properties are taking longer to sell.

Homes typically remained on the market for 42 days last month before selling, up from 41 days in January and 38 days in February last year, NAR said.