Existing home-based sales stumbled in January, falling 4.9% from December to reach 4.08 million per year. The launch in 2025 continues a period of long-term weakness in home sales due to the challenge of affordable prices to keep many buyers on the sidelines.
Despite monthly declines, sales were 2.0% higher than last year, marking the fourth consecutive month of increase per year. However, the improvements did little to alleviate concerns about affordability. The median price for existing homes rose 4.8% to $396,900, the highest recorded in January.
The affordable price crisis continues
The affordability of housing remains a major obstacle. The 30-year fixed mortgage rate averaged 6.85% as of mid-February, almost unchanged from a year ago, and was still well above pre-pandemic levels. The combination of high borrowing costs and price increases continues to withdraw prices for many first-time buyers, which only constituted 28% of purchases in January, at the lowest level since tracking began.
One of the toughest splits in the housing market is between high-end and entry-level sales. Homes over $1 million have seen sales increase of 27% over the past year, while purchases of homes under $250,000 have declined. Cash buyers who were not sensitive to mortgage rates accounted for 29% of transactions, with investors and home buyers accounted for 17%.
Buyer market? There is not at all.
Inventory is growing, but it has not yet been converted to stronger demand. The number of homes for sale has increased by 16.8% from a year ago to 1.18 million. This is 3.5 months' supply at the current sales pace. The home also spent a lot of time on the market on an average of 41 days, the longest since early 2020.
Nevertheless, prices are resilient, especially in high demand coastal markets where bidding wars continue. Nationwide, 15% of homes are selling above the list price, with homes receiving offers of 2.1 to 2.6 in December.
One sign of distress: Foreclosures began to rise by 30% in January. Though distressed sales remained low at 3%, the rise in foreclosures is due to pandemic-era protections continue to expire. The impact remains limited for now, but it is a trend to watch whether affordable pressure will continue.
FOD Policy and the Ways to Begin
With both inflation and inflation expectations rising, the Federal Reserve is unlikely to cut interest rates the earliest by June. That reality will increase mortgage rates and keep the affordable challenges for buyers and sellers.
Real estate agents are looking for a stronger spring market, but when prices are high, the housing sector is waiting for elusive things as buyers are waiting for bailouts.
