Sales of existing homes skyrocketed a whopping 11.8 percent in February compared with January, according to the National Association of Realtors. That is the largest monthly jump ever, with the exception of a change in mortgage policy in 2015 that temporarily skewed the data.

Realtors pointed squarely to dropping mortgage rates and home prices for the increase in demand.

"Consumers are very sensitive to mortgage rates, at least that's what we are finding out. So as mortgage rate began to drop, there was evidently a strong pent-up demand," said Lawrence Yun, chief economist for the Realtors.

At the start of last year, housing demand was robust and rates relatively low, with the average rate on the popular 30-year fixed right around 4 percent, according to Mortgage News Daily. That caused a frenzy in buying through the spring. But with supply remaining tight, prices overheated.

By summer, those prices were moving out of reach, especially as interest rates began rising. By November, the average rate on the 30-year fixed had spiked over 5 percent, and home sales plummeted.

Mortgage rates then began falling in December and moved decidedly lower in January to around 4.5 percent, causing the renewed interest in buyer demand. More consumers now believe it is a good time to buy a home and more believe the economy is improving, according to a sentiment survey by the Realtors in the first quarter of this year.

Still, sales in February were 1.8 percent lower annually, because rates were slightly higher.

But supply also increased, up 3.2 percent year over year in February. Home prices have been moderating for months and were up just 3.6 percent in February, the smallest annual gain in a few years.

"You can see we're still trending to moderation, as years of high price gains has offset the benefit of lower rates," wrote Peter Boockvar, chief investment officer at Bleakley Advisory Group. "The much more timely weekly mortgage applications is seeing flat growth year over year, but let's hope that the Spring selling season will see a pick-up in transactions."

Now, observers wonder whether renewed demand will cause home prices to heat up again.

So far, they haven't because builders are barely ramping up their single-family construction, especially on the lower end of the market.

Existing home sales were still depressed at the entry level, down nearly 11 percent annually for homes priced below $100,000. Even sales of homes priced between $100,000 and $250,000 were flat.

One big change is that sales of higher-end homes that had been seeing strong gains last year were down more than 6 percent in February. That may be due to changes in the tax code that take away deductions on pricier homes.

"For those of us that live in high tax states, I'm worried about the residential real estate markets," added Boockvar.

Going forward, it is unlikely that the housing market will see big monthly jumps like this one, which was more than four times the usual move in either direction. Supply is gaining, but still low at just 3.5 months' worth of supply. A six-month supply is considered a balanced market between buyers and sellers. Income growth is stronger this year, but a large share of buyers are still on the edge of being able to afford a home.

"For-sale homes are staying on the market longer after years of frenzied home buying, and price cuts on listed homes are on the uptick," noted Danielle Hale, chief economist for realtor.com. "But still-high home prices and relatively low inventory will continue to present affordability pressures, especially for first-time homebuyers."