U.S. Existing-Home Sales Decline Again Amid 7% Mortgage Rates

High mortgage rates continue to challenge home buyers and sellers in the market

Sales of existing homes in the United States experienced a significant decline last month, marking the first drop since September. This downturn comes as high mortgage rates and elevated home prices create a challenging environment for buyers, especially as the important spring selling season approaches. According to data released by the National Association of Realtors, contract closings in January decreased by 4.9%, resulting in an annualized rate of 4.08 million. This figure fell short of the median forecast of 4.13 million provided by economists surveyed by Bloomberg.

The most substantial decreases in sales were observed in the West and South regions, where destructive wildfires in Los Angeles and severe winter storms have impacted the market. Lawrence Yun, Chief Economist at NAR, noted in a call with reporters that while weather events have influenced sales figures, it is likely that these transactions will simply be delayed rather than lost entirely.

This recent decline follows the longest period of increasing sales since late 2021, suggesting that buyers and sellers were beginning to adjust to the ongoing high mortgage rates. Currently, home financing costs have remained around 7% for several months, making homeownership unattainable for many Americans due to the combination of these rates and elevated home prices.

Yun highlighted that despite multiple rounds of short-term interest rate cuts by the Federal Reserve, mortgage rates have remained stubbornly high. This situation, coupled with increased home prices, has contributed to ongoing affordability challenges in the housing market. He expressed concern about the implications of the Trump administration's interest in privatizing mortgage giants Fannie Mae and Freddie Mac, which have been under government conservatorship since their bailouts in 2008. The potential privatization could lead to even higher mortgage rates, exacerbating the current affordability crisis.

Bloomberg Economics has also weighed in on the situation, noting that winter housing data has been particularly erratic. However, the overarching trend remains that high mortgage rates continue to render housing unaffordable for prospective buyers while discouraging current homeowners from listing their properties for sale. Analysts anticipate a cooling trajectory for housing market activity throughout the year.

Despite the decline in sales, home shoppers have seen an increase in available properties. This change comes as the “lock-in effect,” where high mortgage rates deter homeowners from listing their homes, has begun to ease. In January, the supply of previously owned homes on the market rose by 3.5% from the prior month, reaching 1.18 million units—the highest for that month since 2020.

However, home prices continue to rise. The median sale price increased by 4.8% year-over-year, reaching $396,900. This increase reflects heightened activity in the higher price segments of the market, particularly among homes priced over $1 million. Yun attributed this trend to strong stock market performance benefiting higher-income buyers, as well as a shift toward more homes being sold in higher price brackets.

The average duration that properties remained on the market increased to 41 days in January, the longest average in five years. Yun mentioned that homes tend to take longer to sell in January, but he expects the time on the market to decrease as the spring season approaches.

Existing-home sales account for the majority of the U.S. housing market and are calculated based on finalized contracts. Upcoming government data on new home sales is expected to be released on Wednesday, providing further insights into the current state of the housing market.