U.S. home sales drop for the 12th straight month
Sales of existing homes fell again in January, but the slower rate of declines suggests the market is "bottoming out."
- NAR reported that home sales were off by less than 1% in January over the previous month.
- Across the U.S., sales were down by more than 36% over the previous year, but some regions saw monthly increases.
- “Buyers are beginning to have better negotiating power,” said NAR Chief Economist Lawrence Yun.
The U.S. decline in home sales reached a milestone in January, marking one year of month-over-month decreases, the National Association of Realtors reported Tuesday.
Sales dropped to a seasonally adjusted rate of four million homes, off only slightly from December (.7%) but down a whopping 36.9% over the previous year. "Compared to one year ago, home sales in the U.S. and all four regions are a third or more lower," noted Danielle Hale, chief economist at Realtor.com.
While all regions of the U.S. reported yearly declines, the South and West saw an increase in sales month-over-month.
"The biggest surprise was in the West, where home sales activity ticked up 2.9% compared to December," said Dr. Lisa Sturtevant, chief economist at Bright MLS. "Buyers have started adjusting their expectations and are ready to get back into the market."
Home sales by U.S. region
Monthly sales were up slightly in the South and West but down in the Northeast and Midwest. Across the nation, home sales were down by double digits from a year ago.
Northeast: Down 3.8% over December and more than 35% from a year ago.
Midwest: 5% lower than the previous month for a 33% decline from January 2022.
South: Up 1.2% in January over December but down 36.6% from the same month a year ago.
West: 2.9% higher last month but down 42.4% from January 2022.
Sales declines are slowing
Sturtevant noted that the rate of decline appears to have slowed. "While home sales have now fallen for 12 months in a row, the January decline is much smaller than previous drops," she said. "January sales reflect purchase contracts made in November or December, and there is evidence that in many markets, the housing market has bottomed out and buyers are beginning to return to the market."
Lawrence Yun, NAR chief economist, agreed that "sales are bottoming out" — which is good news for buyers. "Buyers are beginning to have better negotiating power," Yun said. "Homes sitting on the market for more than 60 days can be purchased for around 10% less than the original list price."
That may be giving a boost to first-time buyers in particular, who accounted for 31% of sales, up from 27% in January 2022.
Inventory up as homes sit on the market longer
The supply of unsold homes was up from the prior month at 980,000, which is close to three months' inventory, but Sturtevant noted the increase was likely "driven by a pullback in new purchase contracts, and not a surge in new listings."
Some would-be sellers are keeping their homes rather than facing higher mortgage rates for a new purchase.
In January, unsold homes typically sat on the market for 33 days, NAR reported, up from 26 days in December and 19 days from a year ago. More than half of homes that sold in January were on the market for less than a month.
Interest rate hikes easing
The overall drop in home sales has followed interest rate hikes that started in March 2022 as the Federal Reserve has sought to rein in inflation. "The full effects of monetary tightening have yet to be felt," Fed chair Jerome Powell said Feb. 1, when the Fed raised rates by a quarter point, a slowdown in the rate of increase.
While mortgage interest rates doubled in 2022, some analysts are predicting a continued slowdown. "I think we could be surprised at how much mortgage rates pull back this year," said Greg McBride, Bankrate's chief financial analyst.
Higher rates for home mortgages have sidelined many buyers. The rate for a 30-year fixed loan averaged 6.32% last week, up from 6.12% over the previous week. The rate was 3.92% a year ago.