The real estate market has seen a boost in existing home sales at the beginning of the year, despite higher mortgage rates. According to the National Association of Realtors, sales of previously owned homes rose 3.1% in January to 4 million units on a seasonally adjusted annualized basis. However, sales were still down 1.7% compared to the previous year.
The increase in sales can be attributed to lower mortgage interest rates in November and December, as contracts were likely signed during this period. Mortgage rates had backed off from their high of 8% in October to a low of around 6.6% by mid-December. However, rates have since increased to over 7%.
Lawrence Yun, chief economist at the NAR, believes that the increase in sales is a positive sign for the market, indicating a balance between supply and demand. He stated, “While home sales remain sizably lower than a couple of years ago, January’s monthly gain is the start of more supply and demand.” The inventory of homes for sale also increased by 3.1% in January to 1.01 million units, but remains at a low three-month supply. A balanced market typically has a six-month supply.
Despite the increase in sales, the market is still experiencing pressure on home prices. The median existing home price for all housing types in January was $379,100, marking a 5.1% increase from the previous year and an all-time high for the month of January. Price increases were seen in all four U.S. regions, and 16% of homes were sold above list price.
One notable trend in the market is the elevated share of cash deals, which accounted for 32% of home sales in January. This is up from 29% in both December and January 2023, and it is the highest level in nearly a decade. The increase in cash deals indicates a market full of multiple offers and driven by record-high housing wealth.
First-time buyers are facing challenges in the market, as they made up only 28% of sales in January, compared to the historical average of around 40%. The lack of lower-priced homes for sale is hitting this group the hardest.
Although lower mortgage rates helped boost sales in January, the market is already feeling the impact of higher rates. A report from Redfin showed that while new listings rose 10% year over year, signed contracts were down 7% compared to the previous year. This suggests that the higher rates are starting to weigh on the market.
Overall, the real estate market has seen an increase in existing home sales at the beginning of the year, driven by lower mortgage rates. However, the market is still facing challenges such as limited inventory and rising home prices. The impact of higher mortgage rates is already being felt, with a decrease in signed contracts. It remains to be seen how these factors will continue to shape the real estate market in the coming months.
