Sales of previously owned homes in the U.S. experienced a 4.9% decline in January due to rising mortgage rates and prices, despite an increase of 2% compared to the same month last year.
The big picture: The national median sales price for homes rose by 4.8% in January from the previous year to $396,900, marking the 19th consecutive month of price hikes, posing a significant challenge to housing affordability.
- The housing market has been in a sales slump since 2022, coinciding with the escalation of mortgage rates post-pandemic. Last year saw the lowest level of sales in almost 30 years.
- Mortgage rates, averaging around 7% this year, have hampered homebuyers, with applications decreasing by 5.5% last week, reaching the lowest level since the beginning of the year, even as rates slightly eased recently.
Driving the news: Influential factors on mortgage rates include the yield on U.S. 10-year Treasury bonds, which has risen amid inflation concerns, tariffs and potential policy impacts, driving the rates higher.
Zoom in: The surge in home prices, combined with elevated mortgage rates, has deterred many prospective buyers, particularly first-time homebuyers, whose share of sales dropped from 31% in December to 28% in January and hit a record low of 24% last year.
- The inventory of unsold homes increased to 1.18 million units in January, offering a 3.5-month supply at the current sales pace, a welcome improvement from the previous year, but still indicating a supply constraint in the market.
- Homes are taking longer to sell, with properties remaining on the market for an average of 41 days in January, the longest duration since before the pandemic, further highlighting the evolving market dynamics.
- Despite the increased inventory, sellers maintain an advantageous position, with 15% of homes selling above their list price last month and receiving an average of 2.6 offers. This trend indicates a market where sellers are favored over buyers.
What we’re watching: Looking ahead, it is projected that there could be around 1.5 million homes on the market at the beginning of the spring homebuying season, although it is indicated that the U.S. housing market ideally requires a closer supply of 2 million properties for sale to meet demand adequately.
