US home sales declined in January for the 12th consecutive month as mortgage rates remained elevated and stubbornly high prices kept homebuyers out of the market. It was the weakest home sales activity since 2010.
The continuation of a slowing trend that began in February 2022 is the longest streak of month-to-month declining home sales on record, going back to 1999 for all homes and 1968 for single-family homes.
Sales of existing homes — which include single-family homes, townhomes, condominiums and co-ops — fell a whopping 36.9% in January from a year ago and were down 0.7% from December, according to a National Association of Realtors report released Tuesday.
The seasonally adjusted annualized sales pace dropped from a pace of over 6 million units a year ago to 4 million last month. The steep decline in sales activity is driven by the large increase of mortgage rates over the past year. Last year, the average rate for a fixed-rate mortgage ranged from 3.22% to 3.55% in January, according to Freddie Mac. This year, rates in January ranged from 6.13% to 6.48%.
All regions of the United States saw drops in home sales year over year. But month-over-month sales were mixed, with the East and Midwest experiencing declines from December to January, while the South and West registered increases.
“Home sales are bottoming out,” said Lawrence Yun, NAR’s chief economist. “Prices vary depending on a market’s affordability, with lower-priced regions witnessing modest growth and more expensive regions experiencing declines.”
Home prices grow at the slowest rate in a decade
Even as home sales dropped last month, home prices continued to climb nationally. The median home price was $359,000 in January, up 1.3% from one year ago, according to the report. But that’s down from the record high of $413,800 in June. The price increase marks more than a decade of year-over-year monthly gains.
Month-to-month home prices tend to be volatile and seasonally skewed, which is why economists look at year-over-year price changes. Median prices in summer months, when larger homes tend to be sold with more competition in the market, will always be higher than winter months when the homes for sale tend to be smaller with fewer competing buyers.
Typically, prices have a seasonal drop of 8% to 10% between the summer and winter, said Yun. But this year that seasonal drop is outsized, with home prices already down 13% from June with another month to go before they usually rise again with the spring home buying season.
The annual price increase of 1.3% is the slowest price gain since February 2012, when the housing market was still digging out from the foreclosure crisis, said Yun. That small median price increase suggests that roughly half the country is seeing price increases, while the other half is seeing price declines, he said.
The West, where homes are the most expensive in the country and where some of the biggest price run-ups occured during the past few years, is seeing some of the biggest price declines. While home prices in the the Northeast, Midwest and the South are either flat or slightly up in January from a year ago, prices in the West were down 4.6% from January 2022.
Listings staying on the market longer
The inventory of homes to buy remains historically low. However, the number of homes increased a bit in January, according to NAR, rising 2.1% from December and 15.3% from one year ago.
“Homes are sitting on the market longer,” said Yun. “But there are fewer fresh listings coming to market this January compared to last January. This is due to homeowners loving their low interest rate and not wanting to give it up and put their home on the market.”
The typical home stayed on the market for 33 days in January, up significantly from 19 days a year ago.
Home sales by price category are experiencing a reversal of a trend seen during past few years, in which homes at the top end of the market were selling briskly. Now, more expensive homes are sitting longer and the sales in those price categories have dropped more than at lower price levels. While sales of homes priced between $250,000 and $500,000 are down 31% from a year ago, sales of homes $1 million and over are down 41%.
Buyers who can circumvent the cost of financing a home by paying cash are doing so, according to the report, with all-cash sales accounting for 29% of transactions in January, an increase of 27% from a year ago. Notably, individual investors or second-home buyers, who often buy in cash, purchased only 16% of homes in January, indicating that many people buying with cash are purchasing a primary home for themselves.
“Inventory remains low, but buyers are beginning to have better negotiating power,” said Yun. “Homes sitting on the market for more than 60 days can be purchased for around 10% less than the original list price.”