Home sales surged in January, buoyed by lower mortgage rates and an increase in homes for sale, enticing more buyers into the market.
The National Association of Realtors reported a 3.1% increase in existing home sales last month, reaching a seasonally adjusted annual rate of 4 million. This uptick, slightly exceeding economists’ expectations, marks the strongest sales pace since August. While this growth is a positive sign for the housing market, it still represents a 1.7% decline compared to January 2023, when sales were higher.
Lawrence Yun, the NAR’s chief economist, noted that January’s sales increase is a promising start for the year, indicating a better balance between supply and demand. Despite this improvement, home sales are significantly lower than in previous years, with last year’s sales hitting a nearly 30-year low, down 18.7% from 2022.
The rise in sales has also led to an increase in home prices, which have climbed 5.1% from January last year to a median price of $379,100. This growth, the seventh consecutive month of price increases, reflects the ongoing housing shortage in the U.S. The median home sales price now surpasses the 4.5% annual gain in U.S. wage growth recorded in January, highlighting the challenges faced by buyers in the current market.
The limited supply of homes for sale and higher mortgage rates have further exacerbated the affordability issue, despite a slight decrease in financing costs since October’s peak. Yun expressed concern over the recent uptick in mortgage rates, which reached 6.90% this week, the highest level since mid-December, potentially impacting affordability for many buyers.
As a result of these challenges, more buyers are opting to purchase homes with cash, with 32% of homes bought last month paid for entirely in cash, the highest share in nearly a decade. However, first-time homebuyers, who historically make up 40% of sales, accounted for only 28% of homes sold last month, indicating the difficulties faced by this group in entering the market.
While the increase in homes for sale in January provided some relief, with 1.01 million homes on the market, inventory remains below historical averages. The current inventory represents a 3-month supply at the current sales pace, slightly higher than in previous months but still below the 4- to 6-month supply considered balanced.
Looking ahead, the spring season typically brings more homes to the market. However, many homeowners with low mortgage rates may choose to stay put, unwilling to give up their favorable rates. With two-thirds of U.S. homes having mortgage rates below 4% and over 90% below 6%, this trend could further limit the supply of homes for sale in the coming months.
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