Contract closings increased 9.5% from a month earlier to a 4.38 million annualized rate, according to National Association of Realtors data released Thursday. The pace exceeded all estimates in a Bloomberg survey of economists.

The figures indicate the resale market is breaking out of a protracted slump due to high mortgage rates that discouraged homeowners from moving and giving up a lower rate that they had locked in in the past few years.

But homeowners may be accepting that mortgage rates are settling into a new normal and can't delay moving any longer, NAR Chief Economist Lawrence Yun said on a call with reporters. That led more to list their properties last month, driving up inventory to the highest for any February since 2020.

"Additional housing supply is helping to satisfy market demand," Yun said in a statement. "Housing demand has been on a steady rise due to population and job growth, though the actual timing of purchases will be determined by prevailing mortgage rates and wider inventory choices."

Mortgage rates will probably decline later this year when the Federal Reserve is expected to cut interest rates. Chair Jerome Powell said Wednesday that the central bank still expects inflation to ease, and policymakers reiterated their forecast for three rate cuts in 2024.

Inventory rising

The number of previously owned homes for sale climbed to about 1.07 million last month, and Yun said he expects that will continue to go up. At the current sales pace, selling all the properties on the market would take 2.9 months, the lowest in about a year. Realtors see anything below five months of supply as indicative of a tight market.

Even with greater inventory, strong demand put upward pressure on prices. The median selling price advanced 5.7% to $384,500 from a year ago, the highest for any February in data back to 1999. Yun noted 20% of homes sold above list price, pointing to the prevalence of multiple offers.

Cash sales represented a third of total transactions. Investors or second-home buyers, who often purchase with cash and are therefore less sensitive to mortgage rates, made up 21% of the market.

Existing-home sales account for the majority of purchases and are based on contract closings. Data on new-home sales, which reflect contract signings, are due next week.

Separate data released Thursday showed initial applications for U.S. unemployment benefits held near historically low levels last week.

Digging deeper

Sales rose in three of four regions, led by a 16.4% surge in the West. Sales of single-family homes were the highest in a year, while condominiums and co-ops transactions also advanced.

First-time buyers made up 26% of purchases in February, matching the lowest on record. Properties remained on the market for 38 days, up from 36 days in January. Distressed sales made up 3% of all transactions, which Yun said is more in line with the pre-pandemic rate.

Sales were up 0.7% from a year earlier on an unadjusted basis.