Where Did the Home Buyers Go? 7% Mortgage Rates Impact Housing Market
The housing market showed signs of continued weakness in January, as high home prices and 7% mortgage rates continued to challenge potential buyers. Existing-home sales fell by 4.9% in January, reaching a pace of 4.08 million homes annually. This figure represents the number of homes that would be sold if sales continued at January’s rate throughout the year, with the numbers seasonally adjusted.
- High Home Prices Persist
The median home price in January reached a record high of $396,900, according to data from the National Association of Realtors (NAR). - Sales Up Year-over-Year
Despite the decline from the previous month, home sales were still up 2% from January 2024.
Housing Affordability Continues to Struggle
Lawrence Yun, chief economist at NAR, stated that housing affordability remains a major obstacle for buyers. The 30-year mortgage rate averaged 6.85% by February 20, according to Freddie Mac.
- High Mortgage Rates Continue to Hinder Sales
Yun noted that persistently high rates were not helping ease the situation, further suppressing demand in the market. - Sales Fall Short of Expectations
The sales pace fell below the expectations of economists who had predicted a smaller decline to 4.13 million homes.
Rising Home Prices and Variations in Sales
While the market has slowed, home prices continued to rise in January, marking the highest price recorded for the month. However, price points revealed significant differences in the types of homes sold.
- Million-Dollar Homes See Growth
Sales of homes priced above $1 million grew by 27% in January compared to the previous year. - Lower-Priced Homes See Decline
On the other hand, the number of homes sold for $250,000 or less fell when compared to last year, with nearly 25% of homes sold at this price point. - Offers on Homes and Cash Buyers
About 15% of homes sold above their list price, a slight decline from 16% in the previous month. Homes received an average of 2.6 offers, up from 2.1 the prior month. All-cash buyers represented 29% of sales, and 28% of buyers were first-time homebuyers.
Preparing for the Spring Home-Buying Season
Looking ahead to the spring home-buying season, market conditions remain challenging for both buyers and sellers. Buyers continue to deal with high prices, high mortgage rates, and low inventory, especially in high-cost areas.
- Inventory and Bidding Wars
While inventory has increased in some parts of the country, bidding wars have returned in densely populated coastal markets, some real-estate agents reported. - Buyer Preparation for Spring
Karen Gastiaburo, a New York City-based real estate broker, suggested that buyers be well-prepared for the competitive spring market, including having pre-approved mortgages and up-to-date financial documents ready.
Warning Signs of Distress in the Housing Market
In some areas, signs of housing market distress are starting to emerge. Foreclosure starts jumped by 30% in January, driven partly by the expiration of a moratorium on foreclosures for homes backed by the U.S. Department of Veterans Affairs.
- Foreclosures and Short Sales
According to NAR data, 3% of home sales in January stemmed from foreclosures or short sales, an indicator of market distress.
Looking Ahead to 2025
The outlook for the housing market in 2025 is not optimistic, as high prices, high mortgage rates, and limited inventory continue to challenge both buyers and sellers. Existing-home sales fell to a near 30-year low in 2023, and further declines were seen last year.
- Continued Challenges for Buyers and Sellers
Economists predict that affordability concerns will continue to dampen sales throughout the first half of 2025, with Ben Ayers from Nationwide forecasting a weaker sales stretch. Many buyers are holding out for better market conditions, with the prospect of lower mortgage rates continuing to be delayed.
The housing market is expected to remain challenging in 2025, with high home prices, high mortgage rates, and low inventory continuing to put pressure on both buyers and sellers.
