In a notable shift in the housing market, sales of previously-owned homes in the United States saw a significant drop in January. According to the National Association of Realtors, there was a 4.9% decline from December, as the median home price in January climbed to an all-time high of $396,900.
The U.S. housing market is facing persistent challenges marked by high mortgage rates, elevated home prices, and a limited supply of listings. In January, sales of previously owned homes declined to 4.08 million units on a seasonally adjusted, annualized basis. Analysts had anticipated a much smaller drop of 2.6%. Furthermore, sales figures remain at a roughly 15-year low, even though they are 2% higher than January of the previous year.
Mortgage rates have remained stubbornly high, failing to decrease substantially despite multiple rate cuts by the Federal Reserve. Lawrence Yun, chief economist for the NAR, emphasized the impact of steady mortgage rates combined with high home prices, stating that housing affordability is a significant hurdle for potential buyers.
By the end of January, there were 1.18 million homes available for sale, marking an increase of 3.5% from December and 17% from January 2024. Despite the increase in inventory, the market is still constrained, maintaining only a 3.5-month supply at the current sales pace, far from the balanced six-month supply typically desired.
The average home spent 41 days on the market last month, the longest duration since before the COVID-19 pandemic in January 2020. Tight inventory continues to exert pressure on home prices, with January seeing a 4.8% increase in the median home price from the previous year. Notably, approximately 15% of homes sold above their list price, consistent with the previous month and year.
Yun noted that while more housing supply could help qualified buyers enter the market, many consumers require both increased inventory and reduced mortgage rates to make homeownership feasible, particularly for first-time buyers, who remain at 28% of sales. This figure is significantly below the historical average of around 40%.
Sales trends differ significantly across price points. Homes priced from $100,000 to $250,000 experienced a 1.2% decrease in sales year-over-year. Conversely, the market for homes priced over $1 million witnessed a nearly 27% increase.
Realtors have reported weak buyer traffic, as Yun remarked, “Realtors are putting more signs up, but the buyers are not coming.” The number of all-cash sales accounted for 29% of transactions, historically high yet lower than the previous year’s 32%.
The current U.S. housing market is characterized by challenges that include high prices and limited affordability. Despite an increase in available homes and a slight decrease in mortgage rates, the market remains difficult for many potential buyers. Until there are substantial shifts in these fundamental factors, the situation is unlikely to improve significantly in favor of buyers.
