WASHINGTON (Reuters) – The United States witnessed a surprising decline in existing home sales during January, following three consecutive months of growth. The downturn was more pronounced than anticipated, attributed to elevated mortgage rates and escalating house prices which have dampened consumer demand. The National Association of Realtors reported a 4.9% drop in home sales last month, resulting in a seasonally adjusted annual rate of 4.08 million units. Economists surveyed by Reuters had projected a more modest decline, expecting sales to reach a rate of 4.12 million units.
The sales figures in January likely reflected agreements made in the preceding months of November and December. Data from mortgage finance firm Freddie Mac revealed an increase in the average rate for the widely-used 30-year fixed mortgage, rising from 6.72% in late October to 6.85% by the end of December. Despite the year-on-year rise of 2.0% in home resales in January, Lawrence Yun, the NAR’s chief economist, pointed out that stagnant mortgage rates, coupled with soaring home prices, continue to pose significant challenges to housing affordability.
This report, combined with a notable decrease in single-family housing starts the previous month, suggests a weakening in residential investment at the onset of the first quarter following a rebound in the October-December period. Mortgage rates have remained stubbornly high despite the Federal Reserve implementing multiple short-term interest rate reductions totaling 100 basis points since September. The Fed paused its rate adjustments in January to assess the economic implications of policies introduced by the administration of President Donald Trump, such as tariffs, tax cuts, and potential mass deportations, which are perceived as inflationary by economists.
The persistently elevated mortgage rates are closely tied to the yield on the 10-year Treasury note, which has climbed due to the resilience of the economy and signs of persistent inflation. Most economists anticipate that the Federal Reserve will only lower rates once in the current year, if at all. In January, the inventory of existing homes saw a 3.5% increase to reach 1.18 million units. Compared to a year ago, the supply surged by 16.8%. The median price of existing homes rose by 4.8% year-on-year to $396,900 in January.
At the sales tempo recorded in January, it would take 3.5 months to deplete the current stock of existing homes, up from 3.0 months a year earlier. A supply range of four to seven months is considered a balanced indicator of market health, balancing supply and demand effectively. Homes spent an average of 41 days on the market last month, the longest since January 2020, compared to 36 days the previous year. First-time buyers made up 28% of total sales, unchanged from the previous year. Economists and real estate specialists argue that a share of 40% is essential for a resilient housing
