Sales of existing homes in the United States experienced a significant and unexpected decline in January, dropping by 8.4% from the previous month. This sharp downturn marks the largest monthly decrease in nearly four years and has prompted a leading economist to declare the nation is facing a “new housing crisis.”
The slowdown, driven by persistently high prices and a shortage of available properties, indicates that potential buyers remain on the sidelines despite slightly improved affordability. According to the latest data, the market is struggling to find momentum, particularly for first-time buyers and those seeking lower-priced homes.
Key Takeaways
- Sales of previously owned homes fell 8.4% in January from December, reaching the slowest pace since December 2023.
- The National Association of Realtors' chief economist, Lawrence Yun, described the situation as a “new housing crisis” due to market stagnation.
- The median home price rose to a record January high of $396,800, an increase of 0.9% from the previous year.
- Housing inventory remains critically low, with only a 3.7-month supply available, well below the 6-month level of a balanced market.
A Sharp Contraction in Market Activity
The latest figures from the National Association of Realtors (NAR) paint a challenging picture for the U.S. housing market. The seasonally adjusted annualized rate of sales fell to 3.91 million units in January. This represents a 4.4% decrease compared to January of last year and is the most significant month-over-month drop since February 2022.
These sales figures are based on closings, which means the contracts were likely signed in November and December. During that period, the average rate on a 30-year fixed mortgage hovered before a slight dip in January. The current rate now stands around 6.1%, a factor that continues to influence buyer decisions.
The sales decline was widespread across the country, with the most substantial drops recorded in the South and West regions. This broad-based slowdown suggests a national trend rather than a localized issue.
What is a 'Housing Crisis'?
While often associated with crashing prices, a housing crisis can also describe a market defined by stagnation. In this case, high prices and low inventory prevent people from moving, buying their first home, or upgrading. This lack of mobility can have wider economic consequences, as it limits consumer spending on items related to moving, such as furniture and renovations.
The Paradox of Affordability and Supply
Lawrence Yun, the chief economist for the NAR, highlighted the conflicting forces at play. On one hand, affordability has technically improved. “Affordability conditions are improving, with NAR’s Housing Affordability Index showing that housing is the most affordable it’s been since March 2022,” Yun stated.
This improvement is attributed to wage growth beginning to outpace the rise in home prices, combined with mortgage rates that are lower than they were a year ago. However, this positive development is being completely undermined by a severe lack of available homes.
“Supply has not kept pace and remains quite low,” Yun explained. He noted that potential buyers are “still struggling” to find suitable properties they can afford.
The result is a market where Americans feel stuck. Homeowners are reluctant to sell and give up their low mortgage rates, while renters find it increasingly difficult to enter the market. “The movement is not happening,” Yun said, emphasizing that this gridlock is the core of the current crisis.
Inventory Shortage Pushes Prices to Record Highs
The fundamental issue plaguing the market is the tight supply of homes for sale. At the end of January, there were 1.22 million homes on the market. While this is a 3.4% increase from the previous year, it still only represents a 3.7-month supply at the current sales pace.
A market is considered balanced when there is a six-month supply of homes. The current 3.7-month supply gives sellers a significant advantage and fuels intense competition for the few homes available.
This scarcity has kept upward pressure on prices. The median price for a home sold in January was $396,800, a 0.9% increase year-over-year and the highest median price ever recorded for the month of January. This continued price appreciation benefits current homeowners but further locks out prospective buyers.
According to Yun, a typical homeowner has accumulated approximately $130,500 in housing wealth since January 2020. While this is a positive financial outcome for owners, it widens the wealth gap for renters who are “not participating in housing wealth.”
A Divided Market: Luxury Thrives While Entry-Level Stalls
A closer look at the sales data reveals a stark divide in the market. The slowdown is not affecting all price points equally. In fact, the only segment of the market that saw positive sales growth compared to a year ago was for homes priced at $1 million or more.
Conversely, the most significant drop in sales occurred at the lower end of the market, specifically for homes priced below $250,000. This trend highlights the immense challenges faced by first-time buyers and those with lower incomes.
There are some signs of hope for new entrants. The share of first-time buyers in the market rose to 31% in January, up from 28% a year ago. However, the overall environment remains difficult. Homes are also sitting on the market longer, with the average time to sell increasing to 46 days in January, compared to 41 days in the same month last year.
As the market heads into the traditionally busier spring season, all eyes will be on mortgage rates and inventory levels. Without a substantial increase in the number of homes for sale, the current crisis of affordability and stagnation is likely to persist, leaving many aspiring homeowners waiting for a market that works for them.
