The numbers: Existing-home sales decreased 7.2% between January and February, falling to a seasonally-adjusted, annual rate of 6.02 million, the National Association of Realtors said Friday. Compared to a year ago, sales were down more than 2%.

Economists polled by MarketWatch had projected existing-home sales to come in at 6.13 million.

“Housing affordability continues to be a major challenge, as buyers are getting a double whammy: rising mortgage rates and sustained price increases,” Lawrence Yun, chief economist for the National Association of Realtors, said in the report. “Some who had previously qualified at a 3% mortgage rate are no longer able to buy at the 4% rate.”

What happened: Sales declined in every region on a monthly basis, and the South was the only part of the country where February’s sales number were higher compared to the previous year.

The median sales price for an existing home in February was $357,300, representing a 15% annual increase. But due to rising mortgage rates, monthly payments for newly-purchased existing homes are now 28% higher than they were a year ago, Yun said.

Unsold inventory of existing homes reached a 1.7-month supply as of the end of February, up from the record low set the month prior. Still, a balanced market is generally indicated by a 6-month supply of homes for sale.

The big picture: Back in January, we likely saw a rush of people looking to close deals to purchase homes as buyers anticipated mortgage rate increases. At the same time, that month’s bad weather and surge of COVID-19 cases prompted a decline in contract-signing activity, which is an early predictor of upcoming existing-home sales.

The popular spring home-buying season will remain competitive because the market is so short on listings right now, and that will continue to push prices higher. But the affordability hits already appear to be hurting demand at the margins. As Christophe Barraud, chief economist for Market Securities, noted, mortgage applications declined in February, suggesting that many Americans may be waiting on the sidelines.

“It’s very likely that the demand from first-time homebuyers will remain subdued in the coming months as housing affordability declined dramatically,” Barraud said.

Looking ahead: “Inventories are at record lows and prices are elevated, a constraint for buyers. But a pick-up in building activity could provide a lift to sales, even as mortgage rates rise,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics, in a research note.

“It’s likely that pending sales in January were depressed by both bad weather and the Omicron wave, but any rebound will be brief, given the declining trend in mortgage demand,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a research note.

Market reaction: The Dow Jones Industrial Average 
declined slightly while the S&P 500 
edged upward in Thursday morning trades following the home-sales report’s release.