Existing home sales increase slightly in January, but record low supply weighs on the market

After a brief downturn in December, buyers returned to the market, although they are still being hurt by the record low supply.

Closed sales of existing homes in January increased 0.6% compared to December, according to the National Association of Realtors.

Sales ended the month at a seasonally adjusted annual rate of 6.69 million units, which was 23.7% higher compared to January 2020. This is the second highest pace of sales since April 2006.

“Home sales continue to play a role in sustaining the economy,” said Lawrence Yun, chief economist at NAR. “With the additional stimulus likely to pass and several vaccines now available, housing prospects look solid for this year.”

There were 1.04 million homes for sale at the end of January, a 26% drop from the previous year. At the current pace of sales, there is now a 1.9 month supply, the lowest since realtors began monitoring this metric in 1982. A year ago, there was a supply of more than 3 months.

The lack of supply in the face of strong demand continues to pressure prices more and more. The average price of an existing home sold in January was $ 303,900, an increase of 14.1% over January 2020. This is the highest January price that realtors have ever recorded.

“We need to build more houses,” said Yun. “Although the start of housing construction shows a decline, it is interesting that permits, the desire to build housing, remain at the highest level in more than a decade.”

Activity was slower at the very low end of the market, with home sales priced below $ 100,000 below 28% year on year and million dollar home sales rising 77%.

Days on the market remain very fast, with homes selling on average in 21 days. Last January, the houses were sold on average in 43 days.

Mortgage rates were close to record lows in December, when most contracts on those sales would have been signed. This gave buyers additional purchasing power, especially due to the very high prices of real estate. Last week, however, mortgage rates rose sharply.

“Looking to the future, we expect demand to remain strong thanks to a large and still growing group of buyers reaching the best buying age, but rising prices and mortgage rates – which jumped this week – may dampen enthusiasm of the buyer with the increase in monthly costs. ” said Danielle Hale, chief economist at realtor.com.

Sales of newly built homes, which are measured by signed contracts rather than closings, increased 15% year-over-year in November, which was the most recent reading. New builders are benefiting from the severe shortage of existing homes for sale, but are having trouble keeping up with demand due to the recent increase in lumber prices. They are also seeing a shortage of completed lots and skilled labor.