WASHINGTON (TND) — The housing market continued its slump in January with another decline in existing home sales as increased mortgage rates priced people out and kept would-be buyers out of the market.
Existing home sales declined 0.7% in January from the month before, the 12th straight month of decline to a seasonally adjusted annual rate of 4 million. Sales were down 36.9% from January 2022.
The National Association of Realtors, which tracks existing home sales, said January’s drop marked the longest streak of declines since records started being kept in 1999.
“Home sales are bottoming out,” said NAR Chief Economist Lawrence Yun. “Prices vary depending on a market’s affordability, with lower-priced regions witnessing modest growth and more expensive regions experiencing declines.”
There had been signs of improvement in the real estate market this year after inflation began to moderate and more buyers stepped back into the market. Homebuying interest tracked by Redfin showed demand was bumping up heading into February, and the spring season is a historically busier time for the industry.
There’s pent-up demand that still hasn’t been met from the Great Recession, let alone the COVID recession,” said Jerry Howard, CEO of the National Association of Home Builders.
A lack of affordability is being further hampered by limited inventory on the market, which is keeping prices stable after the pandemic-era boom brought them to record highs. NAR said total housing inventory sat at 980,000 units at the end of January, up 2.1% from December and 15.3% from January of 2022.
While inventory is up from last year, it is still below historic norms and may continue to stay that way with many homeowners hesitant to put their homes on the market because they are locked into low-interest rates that wouldn’t be available for their next mortgage.
On the bright side for buyers, they are seeing more negotiation power after a couple of years of seller-dominated deals. Fewer people bidding on the same home has reined in the pace of home value growth and left homes sitting on the market longer.
Inventory remains low, but 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.”
Howard said builders are also being hurt by the higher interest rates, along with enhanced costs for materials and labor due to inflation and a shortage of workers that has driven costs up. Supply chain delays that hampered other industries have also hurt home construction, adding to the cost burden for builders that is then passed onto consumers.
“I think the good news is that we’re starting to hear that the delays in getting building materials are shorter than they used to be,” Howard said. “The bad news is that they’re still there.”
Rates have moderated from some of the highs reached last year but are still significantly higher than levels seen during the housing boon during the pandemic. The average rate on a 30-year fixed-rate mortgage was 6.32%, according to Freddie Mac data.
Increases in mortgage rates can make monthly payments more expensive by hundreds of dollars, pricing more people out of the market after the ultra-low rates created more affordability during the pandemic.
The Mortgage Bankers Association said Wednesday that mortgage loan applications decreased 13.3% on a seasonally adjusted basis from a week earlier. That decline coincides with a bump in mortgage rates.
“This time of the year is typically when purchase activity ramps up, but over the past two weeks, rates have increased significantly as financial markets digest data on inflation cooling at a slower pace than expected,” said Joel Kan, MBA’s vice president and deputy chief economist. “The increase in mortgages rates has put many homebuyers back on the sidelines once again, especially first-time homebuyers who are most sensitive to affordability challenges and the impact of higher rates.”