In January, sales of previously owned homes in the U.S. took a notable downturn, dropping significantly as rising home prices and possibly severe winter weather sidelined many potential buyers, despite a slight easing in mortgage rates.
According to the National Association of Realtors, there was an 8.4% drop in existing home sales from December, reaching a seasonally adjusted annual rate of 3.91 million units. That’s the steepest monthly drop we’ve seen in almost four years.
Compared to January of last year, sales decreased by 4.4% as well.
The sales figures fell short of economists’ predictions, which had anticipated a rate of 4.105 million, based on data from FactSet.
Sales trends were sluggish across all regions, including the Northeast, Midwest, South, and West.
“The decrease in sales is rather disappointing,” remarked Lawrence Yun, the Chief Economist for NAR. “With this January’s colder temperatures and extra precipitation, it complicates understanding the true reasons behind the decline and raises questions about whether this month’s figures are just an outlier.”
Even with the drop in sales, home prices continued their upward trajectory last month.
The national median sale price hit $396,800 in January, which represents a 0.9% increase from the same month last year. For 31 months in a row, home prices have risen on an annual basis.
The U.S. housing market has been experiencing a sales slump since 2022, attributed to the surge in mortgage rates from historically low pandemic levels.
The mix of climbing mortgage rates, persistent high home prices, and a prolonged housing shortage due to years of insufficient construction have made it hard for many hopeful homeowners to break into the market.
Last year, existing home sales were at their lowest in 30 years.
Looking forward to 2023, sales are hovering around 4 million units annually, which is significantly below the typical standard of 5.2 million.
Mortgage rates have shown a downward trend in recent months, which supported a slight uptick in home sales during December and offered a more optimistic outlook for the upcoming spring season—at least for those buyers who can manage the current rates.
The average interest rate on a 30-year mortgage temporarily decreased to 6.06% last month, marking the lowest level since September 2022, according to Freddie Mac.
This rate has since inched upward but remains slightly above 6%, which is roughly 1 percentage point lower than a year ago.
Affordability continues to pose a challenge, especially for first-time buyers who lack the equity from a previous home to leverage for a new purchase.
Moreover, uncertainty regarding the economy and job market is keeping many would-be buyers on the fence.
The slow sales mean that homes are lingering on the market for longer periods.
As per NAR, there were 1.22 million unsold homes at the end of January, showing a 0.8% decrease from December but a 3.4% increase compared to January of last year.
However, this is still quite a bit short of the usual inventory of around 2 million units before the pandemic.
At the current sales rate, the inventory at the end of January represents about 3.7 months’ supply. Typically, a balanced market between buyers and sellers is characterized by a supply of five to six months.
