This resulted in a record number of houses being on the market.
According to the National Association of Realtors, existing home sales increased 6.7% from December to a seasonally adjusted annual rate of about 6.5 million. According to FactSet, this is more than the 6.08 million sales economists expected.
The January 2021 sales fell 2.3%, while the median home price rose 15.4% to $350,000.
These prices are rising as potential buyers search for properties that are less available. There were only 860,000 homes on the market at the end January, the lowest number since 1999 when the NAR started tracking it. And there are no signs that this trend will slow down.
The inventory of unsold homes decreased by 2.3% in December and 16.5% compared to a year ago. According to the NAR, this is a record-breaking 1.6 month supply at the current pace of sales.
Although it is normal for fewer properties to be on the market in the months leading to spring homebuying season each year, sellers continue to have an advantage over buyers due to the extremely low number of properties currently on the market.
Combining rising home prices with a shortage of homes on the marketplace has given investors and homebuyers an advantage. According to the NAR, 27% of all home sales were cash transactions last month. They accounted for 19% of home sales last year.
In January, 22% of transactions were made by real estate investors. This is an increase from 15% last year. Last month, 27% of all homes were sold to first-time buyers.
In average, homes were sold within 19 days of being on the market. This is not as fast as in the summer when it was 17 days. Homes typically stay on the market for 45 days in a market with more buyers than sellers.
In response to increasing housing demand, homebuilders have increased their efforts to build more homes. According to the Commerce Department, nearly 1.6 million housing units were built in 2021. This is a 15.6% increase on 2020. However, there are still many homes to be built. Realtor.com recently found that the ratio of new homes to existing households has increased to almost 6 million.
The housing market is expected to be healthy in 2019, thanks to ongoing demographic change, as more millennials and Gen Zers become homeowners. However, with housing being in limited supply since the pandemic, it will be even more difficult for house hunters to find a home this spring due to rising interest rates and higher prices.
The average long-term U.S. mortgage rate rose this week to levels not seen since 2019. According to Freddie Mac, a mortgage buyer, the average rate for a 30-year loan rose to 3.92% from 3.69% last week.
The 30-year rate was at 3.99% in May 2019, the last time it was higher.
The historically low mortgage rates that were offered last year gave homeowners the ability to buy property even as prices rose. Rates are likely to rise as the Federal Reserve steps in to combat inflation by increasing its short-term rate and ending its bond purchases, which helped to keep long-term rates low.
According to Nancy Vanden Houten (lead U.S. economist at Oxford Economics), the rapid-fire sales could lose momentum because prices are rising rapidly and there are so many homes to choose, she said.
Vanden Houten stated that “Resilient demand, strong income gains, will underpin the market for housing,” but that limited supply and declining affordability due to higher prices and steeply higher mortgage rates would limit the pace of sales.
