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New home sales rise in February for the third month in a row

A decline in mortgage rates helped to fuel a burst of new home sales in February as potential buyers rushed to take advantage cheaper borrowing costs.

Sales of new U.S. homes rose for the third straight month in February as buyers rushed to take advantage of a decline in mortgage rates

New single-family home purchases rose 1.1% to a seasonally adjusted annual rate of 640,000 units, the Department of Commerce reported Thursday. Economists surveyed by Refinitiv expected new home sales – which account for a small percentage of total sales – to fall 3% last month.

It marked the strongest pace of sales since August, a sign the housing market may finally be starting to stabilize. However, sales remain down about 19% compared with the same time one year ago.

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"Mortgage rates are steering both supply and demand in today’s costly environment," said Orphe Divounguy, senior economist at Zillow. "When mortgage rates fall, mortgage applications increase and home sales increase. A four-month-long decrease in mortgage rates pulled many buyers back from the sidelines to take advantage of the brief improvement in affordability – with rates dipping and home values slightly falling across parts of the country." 

The interest rate-sensitive housing market has borne the brunt of the Federal Reserve's aggressive campaign to tighten policy and slow the economy. Policymakers already lifted the benchmark federal funds rate nine consecutive times and opened the door to another rate hike at the conclusion of their two-day meeting on Wednesday. 

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The average rate on a 30-year fixed mortgage fell to 6.09% at the beginning of February before beginning to trend higher, according to data from Freddie Mac, the lowest level since September. Rates are currently around 6.4%, compared with about 4.16% just one year ago. 

At the current pace of sales, it would take roughly 2.6 months to exhaust the inventory of existing homes. Experts view a pace of six to seven months as a healthy level. 

For months, higher mortgage rates have dampened consumer demand and brought down home prices. However, home prices unexpectedly marched higher in February, according to the report. 

The median price for a new home rose to $438,2000 in February, up from $427,500 the previous month. 

"The median price rose slightly as home builders refocused their sales incentives," said Holden Lewis, a home and mortgage expert at NerdWallet. "They're more likely to offer to reduce buyers' mortgage rates, or to offset their closing costs, rather than reduce prices."

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A separate report released this week by the National Association of Realtors, meanwhile, showed that sales of previously owned homes climbed 14.5% in February from the prior month to an annual rate of 4.58 million units, snapping a 12-month losing streak. On an annual basis, existing home sales are still down 22.6% when compared with February 2022. 

"Conscious of changing mortgage rates, home buyers are taking advantage of any rate declines," Lawrence Yun, the chief economist at NAR, said in a statement. "Moreover, we’re seeing stronger sales gains in areas where home prices are decreasing and the local economies are adding jobs." 

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