Home sales rose unexpectedly in January, but cash-paying investors are crowding out first-time buyers from a housing market facing record inventories and rising prices.
The surge in U.S. sales of previously owned homes last month reported by the National Association of Realtors on Friday also reflects buyers’ rush to close deals in anticipation of rising mortgage rates.
Investors, however, made up the largest share of transactions in six years last month. First-time buyers accounted for just 27% of sales last month, down from 33% a year ago.
Mortgage rates have reached levels not seen since 2019, with the Federal Reserve expected to start raising interest rates next month to rein in soaring inflation. Economists predict up to seven rate hikes this year.
“It’s the rush to get in before borrowing costs go up,” said Jennifer Lee, senior economist at BMO Capital Markets in Toronto. “Unfortunately, beginners are excluded from the increasingly expensive purchase.”
Sales of existing homes jumped 6.7% to a seasonally adjusted annual rate of 6.50 million units last month. Sales increased in all four regions, with strong increases in the Midwest, the most affordable region.
Sales rose 9.3% in the densely populated South, which is seeing an influx of residents from other areas as businesses embrace remote working.
Economists polled by Reuters had forecast sales falling 1.0% to a rate of 6.10 million units.
Home resales, which account for the bulk of U.S. home sales, fell 2.3% year-on-year.
Strong demand for housing amid a strengthening labor market and massive savings is outstripping supply, dampening sales. Builders were unable to significantly speed up construction due to shortages and higher prices of inputs such as softwood lumber for framing as well as cabinets, garage doors, countertops and Appliances.
According to a report released this week by the National Association of Homebuilders, delivering these products was taking “months,” increasing construction costs and delaying projects. The Commerce Department reported Thursday that the backlog of homes that have been approved for construction but have not yet started hit a record high in January.
Shares on Wall Street were trading lower amid rising tensions in Ukraine. The dollar appreciated against a basket of currencies. US Treasury prices were higher.
Tight supply is keeping real estate prices high. The national median existing home price rose 15.4% from a year earlier to $350,300 in January. The median listing price is much higher in San Diego, according to Realtor.com – $849,000, up nearly 20% year over year.
Sales have remained concentrated in the higher price brackets, where homes are less scarce.
Sales of homes $250,000 and under, the highly sought-after price category, continued to decline.
Rising mortgage rates could make buying a home even less affordable for first-time buyers.
Individual investors or buyers of second homes, which make up many cash sales, bought 22% of homes. This is the largest share since October 2015 and up from 15% a year ago.
Investors are renovating and reselling or renting the houses to take advantage of the hot market. Cash sales accounted for 27% of transactions compared to 19% last January.
There was a record high of 860,000 homes already held on the market last month, down 16.5% from a year ago. At the pace of January sales, it would take a historic low of 1.6 months to deplete current inventory, compared to 1.9 months a year ago.
A six to seven month supply is considered a healthy balance between supply and demand. In January, homes generally remained on the market for 19 days, compared to 21 days a year ago; 79% of homes sold last month had been on the market for less than a month.
The 30-year fixed-rate mortgage averaged 3.92% in the week ending Feb. 17, the highest since May 2019, according to data from mortgage finance agency Freddie Mac. That was up from 3.69% the previous week. Economists expect rising mortgage rates to help slow sales this year.
“Resilient demand and strong income gains will support the housing market, but limited supply and declining affordability due to both rising prices and sharply rising mortgage rates will limit the pace of sales. “said Nancy Vanden Houten, chief US economist at Oxford Economics in New York. .
(Reporting by Lucia Mutikani; edited by Dan Burns, Chizu Nomiyama and Andrea Ricci)