Despite record-low inventory and higher prices, existing home sales jumped in January as buyers expected further rate increases and locked in current low rates, according to the National Association of Realtors (NAR). However, investors with all-cash offers were squeezing out first-time and young homebuyers. More supply especially at lower-end market is needed in order to improve housing affordability.
Total existing home sales, including single-family homes, townhomes, condominiums and co-ops, rose 6.7% to a seasonally adjusted annual rate of 6.50 million in January. On a year-over-year basis, sales were 2.3% lower than a year ago.
The first-time buyer share fell to 27% in January, down from 30% in December and 33% a year ago. The January inventory level declined from 0.88 to 0.86 million units and is still down from 1.03 million units a year ago.
At the current sales rate, January unsold inventory sits at an all-time low 1.6-month supply, down from 1.7-month last month and from 1.9-month a year ago. This low supply of resale homes is good news for home construction.
Homes stayed on the market for an average of just 19 days in January, equal to last month and down from 21 days a year ago. In January, 79% of homes sold were on the market for less than a month.
The January all-cash sales share was 27% of transactions, up from 23% last month and 19% a year ago.
Tight supply continues to push up home prices. The January median sales price of all existing homes was $350,300, up 15.4% from a year ago, representing the 119th consecutive month of year-over-year increases, the longest-running streak on record. The median existing condominium/co-op price of $297,800 in January was up 10.8% from a year ago.
Geographically, all four regions saw an increase in existing home sales in January, ranging from 4.1% in the Midwest and West to 9.3% in the South. On a year-over-year basis, sales in the Northeast and West declined 8.2% and 6.6%, while sales in the South grew 0.3%. Sales in the Midwest remained unchanged from a year ago.
Meanwhile, the Pending Home Sales Index (PHSI) is a forward-looking indicator based on signed contracts. The PHSI decreased 3.8% from 122.3 to 117.7 in December. On a year-over-year basis, sales were 6.9% lower than a year ago per the NAR data.
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These are sales that closed so most of the actual sales occurred 60 to 90 ago. Mortgage rates have risen over 60 basis points since January 1st and they are about a point above their recent lows. That is a 33% increase in the interest portion of a monthly payment and that will dampen demand considerably. Once demand drops, prices will soon follow.
Higher interest rates will slow sales but most builders face a much greater risk posed by the potential loss of sales from backlogs that have grown considerably by good sales and construction delays.