Housing market downturn continues as sales fall for 12th month in a row

The downturn in the country’s housing market dragged on into January as home sales fell for the 12th consecutive month to the slowest pace in more than a dozen years.

The National Association of Realtors said on Tuesday that US existing home sales fell to a seasonally adjusted annual rate of 4 million properties last month. This is the slowest annual pace since October 2010, when the housing market was still reeling from the 2008 crisis.

Sales in January fell nearly 37% from a year ago and fell 0.7% from December. Economists were forecasting modest monthly sales growth, according to FactSet.

The median home price in the US has risen 1.3% since January last year to $359,000. This is the slowest annual increase in house prices since February 2012. The median home price has fallen about 13% since its peak last June.

A modest monthly drop in sales and a slight increase in home prices suggest that the housing market downturn is nearing an end, said Lawrence Yun, chief economist at NAR.

“We need to wait until the situation improves, but home sales may have bottomed out now,” he said.

In January, the path to homeownership for many Americans continued to be largely insurmountable as mortgage rates fell from their November highs but remained about twice as high as a year earlier. As rates rise, they can add hundreds of dollars to monthly mortgage payments.

Consider that the monthly mortgage payment for a typical US starter home priced at $321,900 with a 10% down payment was $1,931 in the fourth quarter, or 57% higher than a year earlier, according to NAR data.

However, some market trends have begun to change in favor of buyers. The number of homes for sale by historical standards remains small, but in January it increased by 2.1% compared to the previous month to 980,000 properties, breaking a five-month decline and up by 15.3% compared to January last year, reports NAR.

This represents a 2.9-month supply at current sales rates, up from 1.6% in January last year. In a more balanced market, there is a 5-6 month margin between buyers and sellers.

“Stocks remain low, but buyers are starting to negotiate better,” Yun said. “Houses on the market for more than 60 days can be purchased for about 10% less than the original list price.”

While house prices rose overall, they fell in about half of the country last month, Yoon said.

On average, homes are sold 33 days after being on the market in January. This is up from 26 days in December and 19 days in January last year. The increase reflects more properties on the market for longer, although more than half of all homes sold last month were sold out in less than a month after they went on sale, NAR said.

Having more homes to choose from likely helped first-time homebuyers, who accounted for 31% of home sales in January, unchanged from the previous month but up from 27% a year earlier.

In general, the market remains competitive, although not as hyped as it was a year ago, when there were more multiple offers and buyers paying well above the asking price.

“Buyers can expect good bargaining power for those homes that are on the market for a long period,” Yun said.

Existing home sales fell nearly 18% in 2022 as mortgage rates climbed to a two-decade high of 7.08% by fall.

The average weekly rate on 30-year mortgages has hovered above 6% since mid-November but jumped to 6.32% last week, the highest level in five weeks, according to mortgage buyer Freddie Mac. A year ago it was 3.92%.

Mortgage rates are rising as the Federal Reserve continues to raise the key interest rate on loans in an effort to cool the economy and tame inflation. Investor expectations about future inflation, global demand for US Treasury bonds and what the Fed is doing with interest rates can also influence the cost of a home loan.

Home loan rates are likely to remain a major drag as long as the Fed continues to raise its key interest rate. At its first meeting in 2023 earlier this month, the Fed raised its benchmark lending rate by 25 basis points, the eighth increase in less than a year. This pushed the central bank’s key rate to a range of 4.5% to 4.75%, the highest level in 15 years.

Fed Chairman Jerome Powell noted that some inflation measures have eased, but he appeared to be suggesting he is envisioning two additional quarter-point rate hikes this year.