Despite a clamor for more inventory in the housing market, elevated mortgage rates coupled with high property prices continue to deter potential buyers. Existing-home sales in January took a downturn of 4.9% compared to December, falling below economists' expectations as per data from the National Association of Realtors (NAR).
The drop in sales comes in spite of more houses being listed for sale. Inventory surged by 3.5% month-on-month, with the 1.18 million units available representing a 16.8% increase compared to the previous year. However, while there's an improvement in inventory, mortgage rates and home prices are becoming even more unaffordable. The median price for an existing home has seen a nearly 5% rise from last year, standing at $396,900. Concurrently, mortgage rates remain close to their historically high levels, just under 7%.
NAR Chief Economist, Lawrence Yun, said, "More housing supply allows strongly qualified buyers to enter the market. However, for many consumers, more inventory and lower mortgage rates are prerequisites for them to invest in a different home or become first-time homeowners."
Following a four-month sales growth, this deceleration suggests a potential loss in momentum in the housing market. "Potential buyers are wary to commit amid soaring mortgage rates and the worst affordability levels in decades," stated Priscilla Thiagamoorthy, BMO Senior Economist. Additionally, sellers are unwilling to relinquish beneficial mortgage terms acquired at the pandemic's onset when rates were at an all-time low.
Further indices also point toward a sluggish housing market, with a parallel decrease in pending home sales and unimpressive mortgage application volume. Expert opinions indicate that it's unlikely for home prices and mortgage rates to ease anytime soon. Oxford Economics Lead U.S. Economist, Nancy Vanden Houten, posits, “While increases in supply might maintain a certain level of sales, unless prices significantly soften, which we don't anticipate, many prospective buyers will continue to be priced out.”