Last year was exceptional for the real estate market, which skyrocketed in the second half. The National Association of Realtors’ January home sales data show some of the same trends continuing this year – as well as some major changes and growing challenges.
Existing home sales in January reached a seasonally adjusted annual rate of 6.69 million, faster than the expected 6.61 million FactSet consensus, and a 0.6% increase from the revised December rate. Sales increased 23.7% compared to last January, the statement said.
This high rate shows that the resale market is still heated after home sales soared in the second half of the year. The January seasonally adjusted rate is one of the highest since April 2006, second only to the rate reported in October 2020, said Lawrence Yun, chief economist at the National Association of Realtors, in a conference call with reporters.
While sales of independent homes remained strong at a rate of 5.93 million, sales of condominiums and cooperatives took a greater leap. Sales of condominiums and cooperatives increased 4.1% month-over-month and 28.8% year-over-year, compared to an increase in sales for a single family of 0.2% month-on-month and 23% year-over-year.
“Single family was preferred over condo over the past year,” said Yun, “but now the condo market is coming back.” Single-family homes still accounted for a much larger share of transactions in January, with 89% of all sales unadjusted.
Luxury is the leader
Sales of single-family homes increased by 23% compared to last January – but the picture varies according to the price range.
Homes priced between $ 250,000 and $ 500,000 accounted for the majority of homes sold at 40.1%. Sales in this category grew 27% year on year.
More accessible domestic transactions have declined. Sales of homes priced between $ 100,000 and $ 250,000 were 2% lower than in the same month last year, while sales of houses below $ 100,000 fell 28% compared to last January.
The biggest growth came from homes priced above $ 1 million, whose sales grew 77% compared to last January. “Sales growth in the upper segment is very strong, while in the lower price category it is low or the increases are very small,” said Yun.
Buyers’ enthusiasm for higher price points may help explain the average selling price of existing homes of $ 303,900 – a slight drop from previous months, but 14.1% above the average price a year ago.
Stock remains tight
A historically restricted offer of existing homes for sale could have cut transactions in 2020 – a trend that shows little sign of slowing down in 2021. Housing stock hit another record low in the first month of the new year, Yun said in the call, falling to 1.04 million units. The supply of months, or how long it would take at the current sales pace to sell all of the listed homes, remained at 1.9 months, flat with December, but below 3.1 months last year. “Sales could be even higher, but the stock simply doesn’t exist,” said Yun.
The strong demand for housing and the scant supply gave builders a boost in 2020 – but when entering 2021, the industry is facing rising costs. January’s new home construction data released earlier this week showed a drop in the seasonally adjusted rate of home construction, which the National Association of Home Builders attributed in part to the high price of materials. “We need to get more inventory,” said Yun on the call. “I know [builders] we are facing these wood prices and other material costs, but we need to build more houses to bring more supplies to the line. “
Mortgage rates are rising
Low inventory is not the only concern that hovers over the residential real estate market as the spring sales season approaches. Rising rates can also weigh on sales, Yun said, citing the upward pressure on 10-year Treasury yield, “a precursor to mortgage rates.”
This is not the first time during the Covid-19 crisis that fears of higher mortgage rates have arisen. Builder’s shares fell in October, with 10-year yields rising to a four-month high. At the time, the 10-year increase in yield had little impact on mortgage rates due to the unusual spread between the two. But the spread would continue to slow.
Mortgage rates started to rise from their historic lows in early January. The average 30-year fixed mortgage rate was 2.81% last week, its highest since mid-November, according to Freddie Mac. And buyers should not expect rates to fall, said Yun.
“It is inevitable that mortgage rates will rise in the coming months,” he said, citing factors such as more stimulus or better economic prospects as potential contributors to a growing 10-year Treasury yield.
Although rates go up, they will remain low by historical standards, says Yun. He predicts that mortgage rates may reach an average of 3% in mid-2021.
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