Existing home sales rose 3% to start the year, but higher mortgage rates are already hurting

Sales of previously owned homes rose 3.1% in January to 4 million units on a seasonally adjusted annualized basis, according to the National Association of Realtors. Sales were down 1.7% year over year.

The count is based on closings, so the contracts were likely signed in November and December, when mortgage interest rates backed off their October high of 8%. By mid-December, the rates had hit a recent low of around 6.6%. Today they are back over 7%, according to Mortgage News Daily.

“While home sales remain sizably lower than a couple of years ago, January’s monthly gain is the start of more supply and demand,” said Lawrence Yun, chief economist for the NAR. “Listings were modestly higher, and home buyers are taking advantage of lower mortgage rates compared to late last year.”

Inventory of homes for sale in January increased to 1.01 million units, up 3.1% from January 2023, but still at a low 3-month supply. Six months is considered a balanced market between buyer and seller.

That dynamic is why the market is still seeing pressure on home prices. The median existing home price for all housing types in January was $379,100, up 5.1% from a year earlier and an all-time high for the month of January.

All four U.S. regions saw price increases, and 16% of homes were sold above list price.

“Multiple offers are common on mid-priced homes, and many homes were still sold within a month. The elevated share of cash deals – 32% – indicated a market full of multiple offers and propelled by record-high housing wealth,” Yun said.

The 32% all-cash share was up from 29% in both December and in January 2023. It’s also the highest level in nearly a decade — since June 2014.

First-time buyers made up just 28% of sales. Historically they make up about 40%, but a lack of lower-priced homes for sale is hitting them hardest.

While lower mortgage rates helped boost January sales, today’s higher rates are already once again weighing on the market. A separate report from Redfin showed new listings rose 10% year over year during the four weeks ending February 18, the biggest increase in two months. Signed contracts, however, were down 7% from a year ago, according to the report.

Correction: The 32% all-cash share of January 2024 home sales was up from 29% in January 2023. An earlier version of this story misstated the comparison.