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| January home sales drop as high prices and mortgage rates strain affordability in U.S. housing market |
The U.S. housing market experienced a significant slowdown in January, with sales of previously owned homes dropping 4.9% from December to an annualized rate of 4.08 million units, according to data from the National Association of Realtors (NAR). Analysts had anticipated a milder decline of around 2.6%. While sales were 2% higher than in January 2024, they remain at historically low levels, continuing a multi-year slump in housing activity.
Despite the slowdown in sales, home prices reached record highs for the month of January. The median sales price rose to $396,900, a 4.8% increase from a year earlier, marking the highest price ever recorded for the month. Price gains were most significant in the Northeast, West, and Midwest, with increases of 9.5%, 7.4%, and 7.2%, respectively, while the South saw a more moderate rise of 3.5%.
Mortgage rates, which have remained stubbornly high near 7%, continue to challenge affordability for first-time buyers. While the Federal Reserve has enacted multiple short-term rate cuts, mortgage rates have remained largely unchanged, keeping homeownership out of reach for many.
“The positive potential factors are not enough to offset these persistently high mortgage rates,” said Lawrence Yun, NAR’s chief economist, noting that rising home inventory and a strong job market have not been enough to counteract affordability challenges.
Housing inventory showed signs of improvement, with 1.18 million homes available for sale at the end of January, up 3.5% from December and 17% higher than a year earlier. However, this still represents just a 3.5-month supply at the current sales pace, significantly below the six-month threshold considered a balanced market.
The length of time homes stayed on the market also increased, averaging 41 days in January, the longest period since early 2020, indicating a slowdown in buyer demand.
Sales trends varied significantly by price range, with higher-end properties continuing to perform well while more affordable homes saw declining demand. Sales of homes priced between $100,000 and $250,000 fell by 1.2% year-over-year, while sales of homes over $1 million surged by nearly 27%.
This trend highlights the growing divide in the housing market, where well-qualified buyers and investors continue to drive activity in the luxury segment, while middle- and lower-income buyers struggle to find affordable options.
The upcoming spring season is typically the busiest time for home sales, but the outlook remains uncertain. While inventory is rising, many prospective buyers are hesitant due to high mortgage rates and increasing costs for insurance and property taxes.
“Realtors are putting more signs up, but the buyers are not coming,” Yun remarked, indicating that affordability remains a persistent challenge despite improving supply.
Mortgage application data in the coming weeks will provide key insights into whether buyers are ready to re-enter the market. The Mortgage Bankers Association reported a 6% drop in applications for home purchase loans in mid-February, suggesting continued hesitancy among buyers.
If inflation cools further and mortgage rates decline, housing affordability could improve, potentially revitalizing buyer demand. However, if rates remain elevated, first-time buyers and lower-income households may continue to struggle, prolonging the housing market’s slump into the spring and beyond.